Stock Market Update

[BRIEFING.COM] The stock market had a mixed showing today. There wasn't a lot of conviction on either side of the tape due in part to the major indices sitting near all-time highs. The S&P 500, which settled little changed from yesterday, is about 16 points off its record closing high. 

The equal-weighted S&P 500 closed fractionally higher, but market breadth was negative. Decliners led advancers by a 3-to-2 margin at the NYSE and by a 2-to-1 margin at the Nasdaq. 

Participants were digesting this morning's release of the October Consumer Price Index, which also garnered a mixed response from Treasuries. Total CPI was up 2.6% year-over-year, versus 2.4% in September, and core CPI up 3.3% year-over-year, unchanged from September, stoking worries about inflation persisting above the Fed's 2.0% target.

The 10-yr yield, which is most sensitive to inflation expectations, settled two basis points higher at 4.45%. The 2-yr yield, which is most sensitive to changes in the fed funds rate, settled four basis points lower at 4.28%.

Rate cut expectations increased slightly in response to the CPI print. The fed funds futures market now sees a 82.3% probability of a 25 basis points rate cut at the December FOMC meeting, up form 58.7% yesterday, according to the CME FedWatch tool.

Semiconductor stocks were a pocket of weakness, leading the PHLX Semiconductor Index (SOX) to close 2.0% lower. This price action also weighed down the S&P 500 information technology sector, which fell 0.3% despite gains in Microsoft (MSFT 425.20, +2.17, +0.5%) and Apple (AAPL 225.12, +0.89, +0.4%).

• Nasdaq Composite: +28.1%
• S&P 500: +25.5%
• S&P Midcap 400: +17.7%
• Russell 2000: +16.9%
• Dow Jones Industrial Average: +16.6%

Reviewing today's economic data:

• Weekly MBA Mortgage Applications Index 0.5% ; Prior -10.8%
• October CPI 0.2% (Briefing.com consensus 0.2%); Prior 0.2%, October Core CPI 0.3% (Briefing.com consensus 0.3%); Prior 0.3%
  • The key takeaway from the report -- and perhaps calming influence -- is the understanding that the shelter index accounted for more than 65% of the total 12-month increase in core CPI, so the market is watering down the headline inflation print as not being as comprehensively inflationary as it seems. The unadjusted change in the all items less shelter index was just 1.3% year-over-year.
• The Treasury Budget for October showed a deficit of $257.4 billion compared to a deficit of $66.6 billion in the same period a year ago. The October deficit resulted from outlays ($584.2 billion) exceeding receipts ($326.8 billion). The Treasury Budget data is not seasonally adjusted so the October deficit cannot be compared to the September surplus.
  • The key takeaway from the report is that the net interest outlay is running close to $1 trillion on an annualized basis.

Thursday's economic data features:

• 8:30 ET: October PPI (Briefing.com consensus 0.2%; prior 0.0%) and Core PPI (Briefing.com consensus 0.3%; prior 0.2%), Weekly Initial Claims (Briefing.com consensus 220,000; prior 221,000), and Continuing Claims (prior 1.892 mln)
• 10:30 ET: weekly natural gas inventories (prior +69 bcf)
• 11:00 ET: Weekly crude oil inventories (prior +2.15 mln)