Stock Market Update

[BRIEFING.COM] The stock market quickly shook off an early-session slide, with broad-based strength and firming rate cut expectations lifting the major averages through the session.

The S&P 500 (+0.8%), Nasdaq Composite (+1.0%), and DJIA (+0.8%) traded in tandem, unlike yesterday's action that saw the tech-heavy Nasdaq Composite distance itself from its counterparts. Today's gains saw the S&P 500 establish a new record closing high of 6,502.08.

Further solidification of a September rate cut saw smaller-cap indices participate in today's rally as well, with the S&P Mid Cap 400 advancing 1.5% and the Russell 2000 advancing 1.3%.

A sizable batch of economic data kept monetary policy at the forefront of the market's attention today.

The ADP Employment Change report showed below-consensus job growth in August (54,000; Briefing.com consensus 69,000) while the ISM Services report for August (52.0%; Briefing.com consensus 50.5%) showed an acceleration in activity, but the Employment Index (46.5) remained in contraction for the third month in a row, all of which combined to reflect some weakness in the labor market.

New York Fed President John Williams (FOMC voting member) stated in a speech today that he anticipates interest rates moving toward more neutral levels, citing a gradual cooling in the labor market. The comments, in conjunction with today's data, combined to bolster rate cut expectations, with the CME FedWatch tool assigning a 97.4% probability to a 25-basis point rate cut at the September FOMC meeting.

The market also benefitted from some buy-the-dip action following yesterday's mega-cap-fueled trade that saw only three S&P 500 sectors finish with gains.

Mega-caps still played a key role among several of the best-performing sectors today, and the Vanguard Mega Cap Growth ETF advanced 0.9%. However, the market-weighted S&P 500 (+0.8%) only modestly outperformed the S&P 500 Equal Weighted Index (+0.7%).

In total, ten S&P 500 sectors finished higher, with only the thinly traded utilities sector (-0.2%) finishing with a loss. 

The consumer discretionary sector (+2.3%) advanced the furthest today, supported by strong leadership in its top component, Amazon (AMZN 235.68, +9.69, +4.29%).

Though not a component of the sector or the S&P 500, American Eagle (AEO 18.79, +5.17, +37.96%) traded sharply higher in response to its robust earnings beat, with the positive sentiment rippling across other names. The SPDR S&P Retail ETF advanced 2.6%

Homebuilders also displayed strength in response to the prospect of a friendlier interest rate environment, with the iShares U.S. Home Construction ETF gaining 3.0% today.

Elsewhere, the communication services sector (+1.1%) widened its week-to-date gain to 4.5% as Meta Platforms (META 748.65, +11.60, +1.57%) and Netflix (NFLX 1257.48, +31.30, +2.55%) traded higher, while Alphabet (GOOG 232.66, +1.56, +0.68%) closed with a more modest gain after yesterday's rally.

While today's gains put the S&P 500 and Nasdaq Composite on the precipice of new record highs, the action came on lighter than average volume, which suggests some caution is tempering conviction behind the advance. 

U.S. Treasuries edged higher on Thursday, adding to their solid gains from yesterday's session. The 2-year note yield settled down two basis points to 3.59% and the 10-year note yield settled down four basis points to 4.18%.

• Nasdaq Composite: +12.4% YTD
• S&P 500: +10.6% YTD
• DJIA: +7.2% YTD
• Russell 2000: +6.7% YTD
• S&P Mid Cap 400: +5.1% YTD

Reviewing today's data:

• August ADP Employment Change 54K (Briefing.com consensus 69K); Prior was revised to 106K from 104K
• July Trade Balance -$78.3 bln (Briefing.com consensus -$64.2 bln); Prior was revised to -$59.1 bln from -$60.2 bln
  • The key takeaway from the report is that the surge in imports reflects an easing of some of the tariff pressures that had been applied by the announcement of higher reciprocal rates. The downside, however, is that the net export component will be a negative component in the calculation of Q3 GDP.
• Q2 Productivity-Rev. 3.3% (Briefing.com consensus 2.4%); Prior 2.4%, Q2 Unit Labor Costs - Rev 1.0% (Briefing.com consensus 1.6%); Prior 1.6%
  • The key takeaway from the report is that it hit a sweet spot of signalling stronger productivity growth and a modest increase in unit labor costs.
• Weekly Initial Claims 237K (Briefing.com consensus 232K); Prior 229K, Weekly Continuing Claims 1.940 mln; Prior was revised to 1.944 mln from 1.954 mln
  • The key takeaway from the report is that there still isn't a strong weakening message being delivered by initial jobless claims, which were up from the prior week but still remain relatively low on a historical basis.
• August S&P Global U.S. Services PMI - Final 54.5; Prior 55.4
• August ISM Services 52.0% (Briefing.com consensus 50.5%); Prior 50.1%
  • The key takeaway from the report is that it is a mixed bag for policymakers, featuring faster growth overall but an ongoing contraction in employment and a continuation of price pressures for services organizations.