Stock Market Update

[BRIEFING.COM] The major averages are modestly lower at midday as rising Treasury yields weigh on equities and offset continued strength in semiconductor stocks. The S&P 500 (-0.2%) and Nasdaq Composite (-0.1%) hold similar losses, while the DJIA (-0.4%) underperforms after all three averages finished firmly higher yesterday.

Selling is more pronounced beneath the headline indices. Decliners outpace advancers by more than 2-to-1 at the NYSE and by roughly 2-to-1 at the Nasdaq, while the Russell 2000 (-0.9%) and S&P Mid Cap 400 (-0.5%) trail their larger-cap peers. The relative weakness in small caps coincides with renewed pressure from Treasury yields, as the 10-year note yield has climbed back to 5.00% after yesterday's six-basis-point decline.

Rate-sensitive areas are consequently among the more pronounced laggards. The utilities sector (-1.3%) sits near the bottom of the standings, while the iShares U.S. Home Construction ETF is down 1.2%. The consumer discretionary sector (+0.1%) has nevertheless edged into positive territory, helped by strength in mega-cap component Amazon (AMZN 253.56, +2.37, +0.94%) that is offsetting broader weakness within the group.

The materials sector (-1.1%) is another notable laggard, pressured by sharp declines in steelmakers following disappointing guidance. Nucor (NUE 248.58, -16.56, -6.25%) and Steel Dynamics (STLD 234.26, -11.10, -4.52%) are among the weakest-performing S&P 500 components after both companies guided third-quarter earnings below expectations. Their cautious outlooks have overshadowed commentary pointing to higher steel selling prices, with STLD also anticipating lower scrap costs.

Technology stocks have provided some resistance to the broader selling but have lost much of their early momentum. The information technology sector (-0.1%) is now slightly lower even as the PHLX Semiconductor Index retains a 1.0% gain after extending yesterday's rally at the open. That semiconductor strength initially helped keep the Nasdaq in positive territory before weakness elsewhere broadened as the morning progressed.

The communication services sector (-0.3%) has followed a similar path after starting the session among the stronger groups. Alphabet (GOOG 346.09, +2.41, +0.70%) has surrendered most of an early gain, while Netflix (NFLX 72.03, -3.28, -4.36%) is among the weakest-performing S&P 500 components after Wells Fargo downgraded the stock to Underweight from Equal Weight.

Meanwhile, the financials sector is unchanged, receiving some support from sharp gains in Coinbase Global (COIN 194.39, +20.42, +11.74%) and Robinhood Markets (HOOD 119.77, +9.96, +9.07%) as Bitcoin moves back above $80,000. The crypto-related names are also benefiting after the SEC announced yesterday the rollout of an "Innovation Exemption" allowing crypto exchanges to offer tokenized equities.

Friday's modest headline losses therefore understate somewhat broader weakness across the market. Rising Treasury yields have erased most of yesterday's decline in rates and weighed particularly on smaller companies and rate-sensitive groups, while lingering semiconductor and select mega-cap strength has helped keep losses for the S&P 500 and Nasdaq relatively contained.

Reviewing today's data:

• Industrial production was unchanged month-over-month in August (Briefing.com consensus: 0.3%) following an unrevised 0.2% increase in July. The capacity utilization rate was 76.3% (Briefing.com consensus: 76.4%) and unchanged from July. Total industrial production was up 1.4% year-over-year. The capacity utilization rate was 3.1 percentage points below its long-run average.
  • The key takeaway from the report is that the softness stemmed from a decline in manufacturing output, yet that downturn could have been a simple case of attrition following increases in manufacturing output for seven consecutive months.
• Aug Leading Economic Index -0.1% (Briefing.com consensus 0.2%; Prior 0.2%)