Stock Market Update

[BRIEFING.COM] Stocks remain under pressure for the third consecutive session of the holiday-abbreviated week, with rising oil prices, higher Treasury yields, and increased expectations for a rate hike keeping buyers on the defensive. The S&P 500 (-0.5%), Nasdaq Composite (-0.5%), and DJIA (-0.6%) remain firmly lower just after midday, while weakness is somewhat more pronounced among smaller stocks, with the Russell 2000 (-0.8%) and S&P Mid Cap 400 (-0.6%) also in negative territory.

Crude oil remains one of the market's primary headwinds as an off-ramp to the U.S.-Iran conflict remains elusive. WTI crude has surged $5.18 (+5.4%) to $101.23 per barrel, extending the oil-driven pressure that weighed on stocks in the previous two sessions. Treasury yields are also moving higher again, with the 10-year note yield at 4.91%.

This morning's August Producer Price Index (0.4%; Briefing.com consensus: 0.4%) added to the difficult backdrop. Although core PPI (0.2%; Briefing.com consensus: 0.3%) came in slightly cooler than expected, upward revisions to the July readings and the continued acceleration in year-over-year producer inflation reinforced expectations that the Fed could raise rates as soon as next week's FOMC meeting. The market is now pricing in a 71.8% probability of a rate hike, up from 61.2% yesterday, according to the CME FedWatch tool.

The selling remains broad, with nine of the 11 S&P 500 sectors trading lower. The materials sector (-1.5%) sits at the bottom of the standings as precious metal prices decline, while the information technology sector (-0.8%) is another notable laggard as semiconductor stocks reverse their relative strength from earlier in the week. The PHLX Semiconductor Index is down 2.2%, with NVIDIA (NVDA 218.57, -5.10, -2.28%) among the more pronounced mega-cap laggards. Taiwan Semiconductor Manufacturing (TSM 430.00, -5.36, -1.23%) is also lower despite reporting a 53.3% year-over-year increase in August revenue to NT$514.81 billion, with some profit-taking following the stock's strong recent run contributing to the muted response. Skyworks (SWKS 83.71, +7.17, +9.37%) is a notable exception to the semiconductor weakness and ranks among the best-performing S&P 500 components.

There are also several earnings-driven pockets of weakness. Cooper (COO 54.18, -9.30, -14.66%)is sharply lower after its Q3 revenue miss and downside Q4 guidance highlighted a steeper near-term slowdown at CooperVision. American Eagle (AEO 14.30, -2.59, -15.33%) is another sizable laggard following its quarterly results, with the reaction reflecting continued softness at the American Eagle brand and a modest reduction to the company's back-half operating income expectations. Several other apparel stocks are trading lower in sympathy.

The communication services sector is one of the few areas showing relative strength. Reddit (RDDT 156.22, +9.78, +6.68%) is among the strongest S&P 500 components, while Comcast (CMCSA 25.02, +0.42, +1.73%) and Charter Comm (CHTR 139.94, +6.05, +4.52%) are rebounding from yesterday's declines that followed Comcast's comments regarding heightened "competitive intensity" at the Goldman Sachs Communacopia + Technology Conference.

Overall, the market continues to contend with the same pressures that drove losses earlier in the week, only with crude oil now above $100 per barrel and expectations for a rate hike increasing following the PPI report. The combination of higher oil prices and elevated Treasury yields has kept selling pressure broad, while renewed semiconductor weakness has removed one of the market's more consistent pockets of support from the previous two sessions.

Reviewing today's data: 

• August PPI 0.4% (Briefing.com consensus 0.4%); Prior was revised to 0.1% from 0.0%, August Core PPI 0.2% (Briefing.com consensus 0.3%); Prior was revised to 0.3% from 0.2%
  • The key takeaway from the report is that while the slightly cooler-than-expected core PPI was a positive sight, it was essentially masked by the upward revisions to readings for July, so this report reinforces the market's expectations for a rate hike as early as next week.
• Weekly Initial Claims 206K (Briefing.com consensus 208K); Prior was revised to 207K from 206K, Weekly Continuing Claims 1.774 mln; Prior was revised to 1.775 mln from 1.779 mln
  • The key takeaway from the report is that initial claims remain locked in a narrow range right on their four-week moving average, signaling little overall change in layoff activity.
• August Existing Home Sales 3.98 mln (Briefing.com consensus 4.03 mln); Prior 4.06 mln
  • The key takeaway from the report is that home sales remain pressured by high mortgage rates and limited inventory, especially at the lower end. Sales of homes priced at $500,000 and below have faced the most pressure while sales of homes priced over $1 million have were up 3.9% year-over-year in August.
• July Wholesale Inventories 1.3% (Briefing.com consensus 1.3%); Prior was revised to 0.4% from 0.2%