Stock Market Update

[BRIEFING.COM] The major averages have drifted lower into midday after spending much of the morning near their unchanged levels, as deteriorating breadth and persistently elevated Treasury yields outweigh support from lower oil prices and a rebound in semiconductor stocks. The S&P 500 (-0.3%), Nasdaq Composite (-0.2%), and DJIA (-0.6%) are all in negative territory, with the Nasdaq holding up somewhat better thanks to strength across the semiconductor group.

Some early support came from declining crude oil prices following an encouraging report on Middle Eastern oil exports, which suggested Iran could be losing some of its leverage over the Strait of Hormuz. Crude oil has continued to weaken and now sits near its lows for the day, down $2.25 (-2.4%) to $90.35 per barrel. However, the decline in oil prices has done little to lift the broader market.

Similar to yesterday's session, Treasury yields remain elevated despite the retreat in crude, with the 10-year note yield up three basis points to 5.28%. The continued pressure in the bond market has limited the benefit to equities from falling oil prices.

Participation has deteriorated considerably from the relatively balanced action seen shortly after the open. Decliners now outpace advancers by more than 2-to-1 on the NYSE and nearly 2-to-1 on the Nasdaq, reflecting broader weakness than the relatively modest declines in the major averages suggest.

Semiconductor stocks are a notable exception after struggling in yesterday's session. The PHLX Semiconductor Index is up 1.5%, helping the information technology sector(flat) remain near its flat line and providing support to the Nasdaq. Semiconductor-linked names are also contributing to relative strength in the industrials sector (-0.1%). Investors are additionally awaiting any potential developments from a high-profile White House lunch hosted by President Trump and attended by a number of prominent executives.

The utilities sector (+0.3%) is the only &P 500 sector that remains in positive territory, while the consumer discretionary sector (flat) is another relative outperformer. Several pronounced stock-specific movers are helping the latter, including Carvana (CVNA 63.53, +3.06, +5.06%), which is rallying alongside CarMax (KMX 59.14, +2.59, +4.58%) after the company's Q2 report featured better-than-expected earnings and revenue and a sharp acceleration in comparable retail used unit sales.

Cruise-line stocks are another pocket of strength in the consumer discretionary sector. Carnival (CCL 24.94, +2.80, +12.62%) is surging after reporting better-than-expected Q3 earnings and record revenue, while strong booking trends reinforced signs of resilient demand. Cruise stocks more broadly are moving sharply higher, with today's decline in crude oil providing an additional tailwind for the fuel-sensitive group.

Conversely, yesterday's defensive outperformers are among today's weakest areas. The health care (-1.0%) and consumer staples (-0.9%) sectors sit near the bottom of the standings. Walmart (WMT 105.75, -2.98, -2.74%) is a significant drag on the consumer staples sector and the price-weighted DJIA after Target (TGT 155.87, -2.56, -1.62%) announced permanent price reductions on nearly 2,000 apparel, footwear, accessories, and home products ahead of the holiday season. The move raises the prospect of more aggressive pricing across general merchandise at a time when consumers are displaying increased sensitivity to value.

Fair Isaac (FICO) is another notable laggard and the worst-performing S&P 500 component. The stock is plunging after FHFA Director Bill Pulte said Fannie Mae (FNMA 4.10, -0.30, -6.88%) and Freddie Mac (FMCC 3.78, -0.22, -5.58%) will move to a single pricing grid incorporating VantageScore alongside the existing FICO Classic model, increasing competition in a market where FICO has long held a dominant position. Rocket Companies (RKT 11.65, +0.01, +0.09%) meanwhile, said it will adopt VantageScore 4.0 as the default model for all eligible loans beginning in the fourth quarter.

On the policy front, Fed Governor Michael Barr, a voting FOMC member, has maintained that further policy adjustments are likely to be needed to return inflation to the Fed's target in a timely manner. The message is consistent with the elevated rate environment that continues to weigh on equities even as today's retreat in crude oil eases one source of inflation concern.

Overall, the relatively modest losses in the major averages understate the weaker tone across much of the market. Semiconductor strength and several pronounced stock-specific gainers are providing pockets of support, but deteriorating breadth and elevated Treasury yields have prevented stocks from capitalizing on a sizable decline in crude oil.

Reviewing today's data:

• Jul FHFA Housing Price Index 0.3% (Prior 0.0%)
• Jul S&P Case-Shiller Home Price Index 2.5% (Prior 2.2% revised from 2.1%)
• The Conference Board's Consumer Confidence Index decreased to 81.9 in September (Briefing.com consensus 90.0) from a downwardly revised 88.6 (from 89.4) in August. In the same period a year ago, the index stood at 95.6.
  • The key takeaway from the report is that consumer confidence weakened for both present conditions and the six-month outlook, with elevated prices for goods and services factoring into that assessment.
• Aug JOLTs - Job Openings 7.079M (Briefing.com consensus 7.150M; Prior 7.335M revised from 7.271M)