Stock Market Update

[BRIEFING.COM] The stock market rallied today, leaving all the major indices higher by at least 1.0%. Advancers led decliners by a 4-to-1 margin at the NYSE and by a nearly 3-to-1 margin at the Nasdaq. The positive bias followed pleasing Producer Price Index data for July.

Total PPI jumped 0.1% month-over-month in July (Briefing.com consensus 0.1%) while core PPI, which excludes food and energy, was flat (Briefing.com consensus 0.2%). The monthly figures left total PPI up 2.2% year-over-year, versus 2.7% in June, and core PPI up 2.4%, versus 2.9% in June.

The welcome disinflation in the report contributed to optimism around the Fed's rate cut path, which sent yields lower and boosted equities. The upside bias may continue tomorrow if the release of the July Consumer Price Index at 8:30 ET corroborates the market's view. 

Treasury yields were already lower following some weak new loan data out of China and some weak economic sentiment data out of the eurozone and dropped further in response to the PPI data. The 10-yr note yield fell six basis points to 3.85% and the 2-yr note yield, which is most sensitive to changes in the fed funds rate, dropped eight basis points to 3.94%.

With today's move higher, the S&P 500 closed above 5,400 for the first time since August 1, just before the jobs report that precipitated last Monday's sharp selloff. Just about everything participated in upside moves, leaving ten of the 11 S&P 500 sectors higher. 

The heavily-weighted information technology (+3.0%), consumer discretionary (+2.4%), communication services (+1.5%), and health care (+1.2%) sectors led the pack. Meanwhile, the energy sector logged a 1.0% decline amid falling commodity prices. WTI crude oil futures settled 1.9% lower at $78.37/bbl and natural gas futures settled 1.4% lower at $2.16/mmbtu.

Dow component Home Depot (HD 350.07, +4.26, +1.2%) closed with a solid gain after trading down as much as 1.9% in response to below-consensus guidance.

Fellow discretionary-related name Starbucks (SBUX 95.90, +18.87, +24.5%) was the biggest advancer in the S&P 500, surging on the news that CEO Laxman Narasimhan has stepped down and will be replaced by Chipotle (CMG 51.68, -4.19, -7.5%) CEO Brian Niccol.

• Nasdaq Composite:+14.5% YTD
• S&P 500: +13.9% YTD
• S&P Midcap 400: +6.2% YTD
• Dow Jones Industrial Average: +5.5% YTD
• Russell 2000: +3.4% YTD

Reviewing today's economic data:

• July NFIB Small Business Optimism 93.7; Prior 91.5
• July Core PPI 0.0% (Briefing.com consensus 0.2%); Prior was revised to 0.3% from 0.4%, July PPI 0.1% (Briefing.com consensus 0.1%); Prior 0.2%
  • The key takeaway from the report is the disinflation trend in total and core PPI, as that is moving in a necessary direction to drive a rate cut by the Fed.

Wednesday's economic lineup features:

• 7:00 ET: Weekly MBA Mortgage Index (prior 6.9%)
• 8:30 ET: July CPI (Briefing.com consensus 0.2%; prior -0.1%) and Core CPI (Briefing.com consensus 0.2%; prior 0.1%)
• 10:30 ET: Weekly crude oil inventories (prior -3.73 mln)