Stock Market Update

[BRIEFING.COM] For the third consecutive day, the stock market ended lower at the index level, with the S&P 500 (-0.5%), Nasdaq Composite (-0.5%), and DJIA (-0.4%) experiencing early pressure as mega-caps continued to underperform, and stronger-than-expected economic data dampened the market's expectations for additional rate cuts this year.

In particular, a strong initial jobless claims report (218,000; Briefing.com consensus: 238,000) reinforced signs of labor market strength, weighing on what has been a driver behind the case for further easing.

According to the CME FedWatch tool, the probability of a 25 basis point cut in October slipped to 85.5% from 91.9% yesterday, while the odds of another cut in December fell to 60.5% from 73.3% yesterday.

Fed commentary further complicated expectations, with Kansas City Fed President Jeffrey Schmid (voting FOMC member) describing policy as “slightly restrictive" and "where it needs to be,” while Fed Governor Stephen Miran (voting FOMC member) reiterated support for a series of cuts in a Bloomberg interview.

The stock market's ensuing retreat broadened past the mega-cap space, with advancers outpacing decliners by a roughly 3-to-1 ratio on the NYSE and Nasdaq. 

Mega-caps still faced pressure (the Vanguard Mega Cap Growth ETF finished 0.5% lower), but broader market weakness saw the market-weighted S&P 500 (-0.5%) outperform the S&P 500 Equal Weighted Index (-0.9%). 

The energy sector (+0.9%) was the only S&P 500 sector that closed with a gain, buoyed by bargain hunting after lagging much of the month. Refiners Valero Energy (VLO 174.46, +3.64, +2.13%) and Marathon Petroleum (MPC 196.48, +3.38, +1.75%) climbed to their best levels since April 2024. Despite a 3.7% week-to-date gain, the sector still trails the broader market for the month.

While the information technology sector finished flat, its reversal from a much wider loss played a pivotal role in lifting the major averages from early session lows.

NVIDIA (NVDA 177.68, +0.72, +0.40%) and Apple (AAPL 256.87, +4.56, +1.81%) both finished in positive territory, while Intel (INTC 33.99, +2.77, +8.87%) captured the widest gain across S&P 500 names as it saw momentum from a potential investment by Apple. 

Despite President Trump finalizing the much-anticipated TikTok deal in which Oracle (ORCL 291.24, -17.22, -5.58%) will be a prominent investor, the stock still succumbed to recent selling pressure.

Meanwhile, the health care (-1.7%), consumer discretionary (-1.5%), and materials (-1.2%) sectors closed with the widest losses. 

Smaller-cap indices such as the Russell 2000 (-1.0%) and S&P Mid Cap 400 (-0.6%) also underperformed today amid fluctuating rate cut expectations.

On the earnings front, KB Home (KBH 62.03, -0.35, -0.56%) finished lower after an earnings beat, with broader weakness across homebuilder names pushing the iShares U.S. Home Construction ETF 1.5% lower.

Accenture (ACN 232.59, -6.49, -2.71%) and Jabil (JBL 210.01, -15.27, -6.78%) also retreated despite earnings beats, while CarMax's (KMX 45.60, -11.45, -20.06%) $0.40 EPS miss saw it finish as the worst-performing S&P 500 name. 

On the heels of today's retreat, tomorrow's release of the PCE Price Index will be closely watched, as another firm inflation reading could further dampen expectations for additional rate cuts.

U.S. Treasuries retreated on Thursday with shorter tenors pacing a continuation of post-FOMC selling while the long bond outperformed, finishing modestly higher.

The 2-year note yield settled up six basis points to 3.77%, and the 10-year note yield settled up three basis points to 4.17%.

Reviewing today's data:

• The third estimate for Q2 GDP was revised up to 3.8% (Briefing.com consensus: 3.3%) from the second estimate of 3.3%, spurred on by an upward revision to consumer spending. The GDP Price Deflator was revised up to 2.1% (Briefing.com consensus: 2.0%) from the second estimate of 2.0%.
  • The key takeaway from the report is that the consumer and the economy in aggregate were still operating in a solid state in Q2. Real final sales to private domestic purchasers were up 2.9% versus 1.9% in the second estimate.
• Weekly initial jobless claims for the week ending September 20 decreased by 14,000 to 218,000 (Briefing.com consensus: 238,000), while continuing jobless claims for the week ending September 13 decreased by 2,000 to 1.926 million.
  • The key takeaway from the report is the recognition that initial jobless claims—a leading indicator—are running at levels more consistent with a strong labor market than a weak one. If nothing else, there certainly wasn't a lot of firing activity in the week ending September 20.
• Durable goods orders increased 2.9% month-over-month in August (Briefing.com consensus: -0.5%) following an upwardly revised 2.7% decline (from -2.8%) in July. Excluding transportation, durable goods orders rose 0.4% month-over-month (Briefing.com consensus: -0.1%) following a downwardly revised 1.0% increase (from 1.1%) in July.
  • The key takeaway from the report is the nondefense capital good orders, excluding aircraft—a proxy for business spending—jumped 0.6% on the heels of a 0.8% increase in July.
• The Advance International Trade in Goods deficit narrowed to $85.5 billion from an upwardly revised $102.8 billion (from -$103.6 billion) in July. Advance Retail Inventories were flat following a downwardly revised 0.1% increase (from 0.2%) in July, and Advance Wholesale Inventories were down 0.2% following a downwardly revised unchanged reading (from 0.2%) in July.
  • The key takeaway from the report is that it had tariff policies written on it, evidenced by the fact that imports were $19.6 billion less than July imports, while exports were $2.3 billion less than July exports.
• Existing home sales dipped 0.2% month-over-month in August to a seasonally adjusted annual rate of 4.00 million (Briefing.com consensus 3.99 million) from an unrevised 4.01 million in July. Sales were up 1.8% on a year-over-year basis.
  • The key takeaway from the report is that home sales in August were still constrained by high prices, higher mortgage rates, and limited supply. The biggest month-over-month increase in sales was in the Midwest, which is also the region with the lowest median price (by a lot).