Stock Market Update

[BRIEFING.COM] The major averages have slipped to their session lows just after midday, with the S&P 500 (-0.3%) and Nasdaq Composite (-0.6%) moving lower while the DJIA (-0.1%) trades near its flatline. The relatively subdued index moves mask a choppy morning that featured an early mega-cap-driven rally before semiconductor weakness and rising Treasury yields weighed on the broader market.

Stocks spent the first hour of the session little changed as investors digested Fed Chair Kevin Warsh's address at the Jackson Hole Symposium. Mr. Warsh emphasized that inflation remains above the Fed's 2% target and said the central bank's predominant focus should currently be on price stability. The comments prompted a notable repricing of near-term policy expectations, with the CME FedWatch Tool assigning a 61.7% probability to a 25-basis-point rate hike at the September FOMC meeting, up from 35.4% yesterday.

Treasury yields moved higher alongside the shift in rate expectations. The 2-year note yield is up 11 basis points to 4.34%, while the 10-year note yield has risen four basis points to 4.72%. The Russell 2000 (-0.5%) and S&P Mid Cap 400 (-0.5%) have unsurprisingly struggled against that backdrop.

The major averages initially took the hawkish policy shift in stride, climbing to session highs around 11:00 a.m. as non-semiconductor mega-cap stocks widened their gains. That strength has faded somewhat but remains evident in the communication services (+1.3%) and consumer discretionary (+1.4%) sectors, which continue to outperform behind gains in Alphabet (GOOG 342.12, +4.41, +1.31%) and Amazon (AMZN 265.42, +9.16, +3.57%). Apple (AAPL 320.96, +6.38, +2.03%) and Microsoft (MSFT 517.10, +12.04, +2.38%) are also higher, helping offset some of the weakness elsewhere in the information technology sector (-0.8%).

Semiconductor stocks have been the biggest source of pressure as the morning has progressed. The PHLX Semiconductor Index (-3.0%) has fallen sharply, with NVIDIA (NVDA 219.82, -8.16, -3.58%) giving back a portion of yesterday's post-earnings surge and Marvell (MRVL 217.51, -23.94, -9.92%) sinking following its own results. The weakness has left the information technology sector (-0.8%) among the day's laggards.

Software stocks are also giving back some of yesterday's earnings-driven surge, with the iShares Expanded Tech-Software Sector ETF down 0.8%. Workday (WDAY 205.25, +11.68, +6.04%) is higher following its earnings report, although CrowdStrike (CRWD 216.92, -11.04, -4.84%) and other recent winners have come under renewed pressure.

Selling has also spread beyond technology as the session has progressed. The industrials sector (-1.0%) is among the weaker groups, while six S&P 500 sectors now trade lower after eight had been positive shortly after the open. Decliners outpace advancers by roughly a 3-to-2 margin on the NYSE and a 2-to-1 margin on the Nasdaq, reflecting the broader deterioration beneath the major averages.

Overall, the morning has featured a notable shift from the initially constructive response to Warsh's remarks. Strength in non-semiconductor mega-caps continues to provide support for the major averages, but rising Treasury yields, a sharp semiconductor retreat, and weakening breadth have erased the earlier gains and left the market near its session lows just after midday.

Reviewing today's data:

• August Chicago PMI 47.1 (Briefing.com consensus 57.0); Prior 57.6
• August Univ. of Michigan Consumer Sentiment - Final 51.7 (Briefing.com consensus 51.0); Prior 51.0
  • The key takeaway from the report is that persistent inflation concerns are undercutting consumer sentiment.