Closing Market Summary: Small Caps Lead Stocks Higher Ahead of FOMC
The stock market ended the Tuesday session on a modestly higher note with participants gearing up for the latest policy directive from the FOMC, which will be released on Wednesday afternoon.
Small- and mid-cap stocks led the way with the Russell 2000 and S&P Mid Cap 400 climbing 0.7% and 0.8%, respectively. Meanwhile, the S&P 500 added 0.2% with five sectors posting gains.
Overall, cyclical groups did the bulk of the grunt work as five of six growth-sensitive sectors advanced. Financials (+0.9%) seized the lead at the start of the session and never looked back. Top-weighted components like Bank of America (BAC 15.59, +0.31) and Morgan Stanley (MS 32.50, +0.79) posted respective gains of 2.0% and 2.5%, while the entire sector extended its June advance to 1.9%.
Financials notwithstanding, gains in other areas were much more subdued as the second-best sector of the day—consumer discretionary—added just 0.3%. Retailers contributed to the strength with the SPDR S&P Retail ETF (XRT 86.28, +0.74) climbing 0.9%, while shares of Netflix (NFLX 443.65, +13.39) jumped 3.1% amid reports indicating lawmakers are finalizing a proposal that would ban internet fast lanes.
Also of note, the technology sector (+0.2%) contributed to the outperformance of the Nasdaq Composite (+0.4%), but it is worth mentioning that the bulk of the strength came from high-beta chipmakers. The PHLX Semiconductor Index jumped 0.7% as 25 of its 30 components finished in the green.
Although most growth-oriented sectors posted gains, that was not the case with the energy space (-0.2%). The sector trimmed its loss into the close, but could not turn positive as its top-weighted listing—ExxonMobil (XOM 102.42, -0.50) weighed. Shares of ExxonMobil fell 0.5%, while crude oil slumped into the pit close, diving 0.6% to $106.28/bbl.
Meanwhile, the other commodity-related sector, materials (+0.2%), received support from steelmakers and miners. The Market Vectors Steel ETF (SLX 46.55, +0.41) rose 0.9% and Market Vectors Gold Miners ETF (GDX 24.12, +0.14) added 0.6% even as gold futures retreated.
The yellow metal slipped 0.3% to $1271.80/ozt, but still ended above its pre-CPI levels. Gold traded at $1265 ahead of the report and fell to $1260 immediately after, before spending the remainder of the day in a slow climb.
On the fixed income side, Treasuries fell to lows following this morning's data and continued their retreat into the close. The 10-yr yield rose five basis points to 2.65%.
Participation was well below average with less than 600 million shares changing hands at the NYSE.
Economic data was limited to May housing starts/building permits and CPI:
* Housing starts fell 6.5% in May to 1.001 million from a downwardly revised 1.071 million (from 1.072 million) in April. The consensus expected housing starts to fall to 1.028 million. Multifamily construction fell 7.6% to 376,000. There is still room for more declines over the next few months. The bigger concern was the trend in single-family construction. That type of construction is normally stable, but these starts fell 5.9% in May to 625,000. That was the lowest level since 589,000 single-family homes were started in February. Hopefully, this was just a one-month blip but it warrants closer evaluation. * Consumer prices increased 0.4% in May, up from a 0.3% increase in April. That was the largest increase since February 2013. The consensus expected the CPI to increase 0.2%.
* Contrary to the trends in the PPI, both food and energy prices contributed positively to overall consumer price growth in May. * Food prices increases accelerated in May. After increasing by 0.4% for each of the last three months, prices rose 0.5% in May. That was the largest increase since August 2011. Food at home prices rose 0.7%, the biggest increase since July 2011. * Energy prices increased 0.9% in May on a 2.3% increase in electricity costs and a 0.7% increase in gasoline costs. Some of this gain was due to seasonal credits that temporarily lowered electricity prices in California in April and returned to normal in May.
* Excluding food and energy, core CPI increased 0.3% in May after increasing 0.2% in both March and April. That was the largest increase in core prices since August 2011. The consensus expected these prices to increase 0.2%.
Tomorrow, the weekly MBA Mortgage Index will be released at 7:00 ET, while Q1 Current Account Balance (consensus -$97.80 billion) will cross the wires at 8:30 ET. Lastly, the FOMC will release its latest policy directive at 14:00 ET.
* S&P 500 +5.1% YTD * Nasdaq Composite +3.9% YTD * Dow Jones Industrial Average +1.4% YTD * Russell 2000 +1.0% YTD