Stock Market Update

[BRIEFING.COM] The last day of the second quarter started with a bit of a bang but ultimately ended with a whimper. The major indices, up between 0.7% and 1.0% at their highs off the morning that had the S&P 500 and Nasdaq Composite in record territory, retreated from those levels in an orderly fashion and closed the session in red figures with the exception of the Russell 2000 (+0.5%). The latter had a late surge associated with the reconstitution of the Russell indices that was responsible for today's much heavier than average trading volume.

A pleasing Personal Income and Spending Report for May, which featured increases in real disposable personal income and real personal spending to go along with a moderation in inflation pressures, provided a headline bang that sent Treasury yields lower and equity futures higher.

It was a welcome offset to the dismal showing from Dow component Nike (NKE 75.36, -18.83, -20.0%), which greatly disappointed investors with its FY25 sales outlook, and the cloud of uncertainty hanging over the presidential election with Politico suggesting Democrats are actively considering replacing President Biden on the Democratic ticket after his debate performance.

Mega-cap stocks and semiconductor issues took charge at the open, but there was broad-based participation in the early move. None of that lasted without challenge, however, as a stark reversal in Treasury yields and quarter-end activity took the steam out of the stock market.

The 2-yr note yield, which went from 4.72% just before the Personal Income and Spending Report to 4.66% after its release, settled the session unchanged at 4.72%. Similarly, the 10-yr note yield went from 4.30% to 4.26%, but settled the session up six basis points to 4.34%. 

There were only four S&P 500 sectors that finished higher. The biggest gainer was the real estate sector (+0.6%) followed by the financial (+0.4%) and energy (+0.4%) sectors. Standouts on the losing side included the communication services (-1.6%), consumer discretionary (-1.4%), and utilities (-1.1%) sectors. The information technology sector, up 1.6% at one point, finished the day down 0.4%. Still, for the quarter it was the best-performing sector with a 13.6% gain.

The Vanguard Mega-Cap Growth ETF (MGK) lost 0.9% today, but still ended the quarter up 9.6%. The mega-cap leadership was instrumental in the 3.9% quarterly gain for the market-cap weighted S&P 500. The equal-weighted S&P 500, on the other hand, declined 3.0% in the second quarter.

• Nasdaq Composite: +18.1% YTD
• S&P 500: +14.5% YTD
• S&P Midcap 400: +5.3% YTD
• Dow Jones Industrial Average: +3.8% YTD
• Russell 2000: +1.0% YTD

Reviewing today's economic data:

• Personal income increased 0.5% month-over-month in May (Briefing.com consensus 0.4%) following a 0.3% increase in April and personal spending increased 0.2% month-over-month (Briefing.com consensus 0.3%) following a downwardly revised 0.1% increase (from 0.2%) in April. The PCE Price Index was unchanged on the heels of a 0.3% increase in April, leaving it up 2.6% year-over-year versus 2.7% in April. The core-PCE Price Index, which excludes food and energy, was up 0.1% month-over-month after a 0.3% increase in April, leaving it up 2.6% year-over-year versus 2.8% in April.
  • The key takeaway from the report is that it was right on the mark with numbers supporting a soft landing and moderating inflation, which will keep alive the market's hope for a Fed rate cut before the November election.
• The final Index of Consumer Sentiment for June checked in at 68.2 (Briefing.com consensus 65.6) versus the preliminary reading of 65.6. The final reading for May was 69.1. In the same period a year ago, the index stood at 64.2. Year-ahead inflation expectations fell to 3.0% from the preliminary reading of 3.3%, versus the 2.3-3.0% range seen in the two years before the pandemic. Long-run inflation expectations came in at 3.0% versus the preliminary reading of 3.1%. They have held between 2.9% and 3.1% in 31 of the last 35 months. In the two years pre-pandemic, long-run inflation expectations were in the 2.2-2.6% range.
  • The key takeaway from the report is that consumers were generally feeling better about short- and long-run business conditions due to expectations of softening interest rates.
• The June Chicago PMI improved to 47.4 from 35.4. A number below 50.0 denotes contraction, so the June reading implies a continuing contraction for manufacturing activity in the Chicago Fed region but at a slower pace than the prior month.