Stock Market Update

[BRIEFING.COM] The stock market saw some roller-coaster action today that followed the track of developments related to the Israel-Iran conflict, which was elevated over the weekend when the U.S. destroyed three nuclear sites in Iran.

The U.S.-led strikes created some nervous energy in the capital markets, but they didn't create much fear. That was clear to see at today's open, when stocks moved higher and oil prices moved lower. They did so, driven by a sense that the conflict will be contained and that there won't be any major disruption to oil supplies coming out of the Middle East.

The early gains faded, though, with the S&P 500 running into resistance at the 6,000 level, and as news reports indicated Iran was preparing a missile strike on a U.S. base in Qatar. The latter report was accurate, but subsequent reports that Iran notified officials beforehand to limit any casualties, that the missiles were intercepted by Qatar's air defense system, and that there were no casualties or deaths triggered a relief trade that carried the indices to new session highs and the S&P 500 back above 6,000.

That relief was also evident in the oil market. WTI crude futures fell 7.0% today to $68.63/bbl. That move undercut the energy sector (-2.5%), which was the only S&P 500 sector to close in red figures. Gains for the remaining 10 sectors ranged from 0.1% (health care) to 1.8% (consumer discretionary), but eight sectors were up at least 1.0%.

The consumer discretionary sector was steered by Tesla (TSLA 348.71, +26.55, +8.24%), which surged after rolling out its robotaxi service in Austin, TX. Tesla also spearheaded a 1.3% gain in the Vanguard Mega Cap Growth Index Fund (MGK 352.79, +4.62, +1.33%).

The rate-sensitive real estate (+1.5%), utilities (+1.3%), and financials (+1.2%) sectors were relative strength leaders today, benefitting from a drop in Treasury yields that was helped by safe-haven flows and burgeoning hope the Fed could cut rates at its July FOMC meeting.

Fed Governor Bowman (FOMC voter) said she could support a rate cut at the July meeting if inflation pressures remain contained. Her view followed on the heels of Fed Governor Waller (FOMC voter) saying on Friday that he thinks the Fed could cut rates at its July meeting.

The 2-yr note yield fell eight basis points to 3.83%, and the 10-yr note yield dropped six basis points to 4.32%. Separately, the fed funds futures market increased the probability of a 25-basis point cut at the July meeting to 22.7% from 14.5% on Friday, according to the CME FedWatch Tool.

These viewpoints will add some intrigue to Fed Chair Powell's semiannual monetary policy report, which he will deliver Tuesday before the House Financial Services Committee. Undoubtedly, he will be pressed to explain why the Fed, based on comments from his recent press conference, isn't inclined to cut rates at the July meeting.

• S&P 500: +2.4% YTD
• Nasdaq: +1.7% YTD
• DJIA: +0.1% YTD
• S&P 400: -2.3% YTD
• Russell 2000: -4.4% YTD

Reviewing today's data:

• Flash June S&P Global U.S. Manufacturing PMI (Actual 52.0; prior 52.0) and flash June S&P Global U.S. Services PMI (Actual 53.1; prior 53.7)
• Existing home sales increased 0.8% month-over-month in May to a seasonally adjusted annual rate of 4.03 million (Briefing.com consensus 3.94 million) from an unrevised 4.00 million in April. Sales were down 0.7% from the same period a year ago.
  • The key takeaway from the report is that the inventory of existing homes for sale is rising, yet overall demand remains subdued because of affordability constraints stemming from high prices and high mortgage rates.