Stock Market Update

[BRIEFING.COM] This morning's economic data strengthened the market's rate cut expectations through the end of the year, sending the S&P 500 (+0.9%), Nasdaq Composite (+0.7%), and DJIA (+1.4%) to record intraday and closing highs as stocks mounted a broad-based advance. 

While the August CPI print came in slightly hotter than expected (0.4%; Briefing.com consensus: 0.3%), and Core CPI met expectations at 0.3%, today's focus centered around a 27,000 spike in initial jobless claims to 263,000 (Briefing.com consensus: 240,000), their highest level since October 2021. 

While neither data report was particularly comforting, investors were, at least for the short term, enthused by the effect the weaker labor data had on near-term rate cut expectations.

According to the CME FedWatch tool, there is now a 92.4% probability of at least a 25 basis point cut to 3.75-4.00% at the October FOMC meeting versus 80.9% yesterday, and an 86.2% probability of at least a 25 basis point cut to 3.50-3.75% at the December FOMC meeting versus 74.5% yesterday.

A 25-basis point rate cut at next week's FOMC meeting was fully priced in entering today's session. 

Stocks largely moved higher in response to the bolstered rate cut odds, with the major averages charting new record highs all the way through to the close. 

Ten S&P 500 sectors closed with gains, with only the energy sector finishing flat as crude oil futures settled today's session $1.31 lower (-2.1%) at $62.36 per barrel.

Meanwhile, the materials (+2.1%), health care (+1.7%), consumer discretionary (+1.7%), financials (+1.7%), and real estate (+1.6%) sectors closed with gains wider than 1.5%. 

Despite only a modest flow of corporate headlines, there were some impressive individual moves today.

Centene (CNC 34.08, +2.82, +9.00%) moved higher after reaffirming its FY25 guidance, Micron (MU 150.57, +10.57, +7.55%) benefitted from a price increase to $175 from $150 at Citigroup, and a Wall Street Journal report that Paramount Skydance (PSKY 17.50, +2.39, +15.82%) is preparing a majority cash bid for Warner Bros. Discovery (WBD 16.17, +3.63, +28.95%) sent both stocks sharply higher.

Tesla (TSLA 368.81, +21.02, +6.04%) was the top performer among the market's largest names amid a relatively subdued session for the mega-caps. The Vanguard Mega Cap Growth ETF closed with a 0.5% gain.

While most pockets of the market displayed strength today, homebuilder names outperformed in response to the bolstered rate cut probabilities, sending the iShares U.S. Home Construction ETF up 2.8%.

Outside of the S&P 500, smaller-cap indices relished in the prospect of a friendlier future rate environment. The Russell 2000 advanced 1.8%, and the S&P MidCap 400 added 1.6%.

On the policy front, CNBC reported that the Senate will vote Monday on Stephen Miran's Fed Governor nomination, potentially seating him in time for the September FOMC meeting. Separately, Treasury Secretary Scott Bessent signaled he intends to expand the list of candidates under consideration for President Trump's next Fed Chair nomination.

U.S. Treasuries ended Thursday with slim gains in longer tenors, while the short underperformed as the market pondered the implications of today's economic data. The entire complex faced some pressure during the final two hours of action even though the U.S. Treasury completed this week's strong note and bond auction slate with a 30-year bond reopening that was right on the screws.

The 2-year note settled unchanged at 3.53%, the 10-year note yield settled down two basis points to 4.01%, and the 30-year note yield settled down three basis points at 4.65%. 

• Nasdaq Composite: +14.2% YTD
• S&P 500: +12.0% YTD
• Russell 2000: + 8.6% YTD
• DJIA: +8.4% YTD
• S&P Mid Cap 400: +6.4% YTD

Reviewing today's data:

• August CPI 0.4% (Briefing.com consensus 0.3%); Prior 0.2%, August Core CPI 0.3% (Briefing.com consensus 0.3%); Prior 0.3%
  • The key takeaway from the report (for Main Street) is that food prices were starkly elevated in August (+0.5%), as were shelter (+0.4%), apparel (+0.5%), transportation services (+1.0%), and gasoline (+1.9%) prices.
• Weekly Initial Claims 263K (Briefing.com consensus 240K); Prior was revised to 236K from 237K, Weekly Continuing Claims 1.939 mln; Prior was revised to 1.939 mln from 1.940 mln
  • The key takeaway from the report is rooted in the eye-opening initial jobless claims print, which will be construed in the market's mind as a weakening labor market signal and another basis for the Fed to cut rates in September, as well as in October and December.
• The Treasury Budget for August showed a deficit of $344.8 billion compared to a deficit of $380.1 billion in the same period a year ago. The August deficit resulted from outlays ($689.1 billion) exceeding receipts ($344.3 billion). The Treasury Budget data are not seasonally adjusted so the August deficit cannot be compared to the July deficit of $291.1.
  • The key takeaway from the report is that it underscores the large budget deficit the Treasury is running and how much larger it would be if not for the ramp-up in customs duties this fiscal year.