Weekly Wrap

The stock market ultimately logged gains, but there wasn't a lot of conviction in the first half of the week in front of market-moving events. The June Consumer Price Index and Producer Price Index were released Thursday and Friday, respectively.

Total CPI deflated 0.1% month-over-month, slowing the pace of growth to 3.0% on a year-over-year basis from 3.3% in May. Core-CPI, which excludes food and energy, decelerated to 3.3% on a year-over-year basis from 3.4%.

Total PPI was up 0.2% versus an expected 0.1% increase and Core PPI was up 0.4% versus an expected 0.1% increase.

The CPI report overshadowed the PPI report and fueled optimism about the path of inflation and Fed policy. The fed funds futures market is pricing in a 94.4% probability of a rate cut at the September FOMC meeting, up from 77.7% one week ago.

Treasury yields sank in response to the data, acting as support for equities. The 10-yr note yield fell eight basis points to 4.19% and the 2-yr note yield declined 14 basis points to 4.46%.

This week's calendar also featured the start of earnings season when JPMorgan Chase (JPM), Wells Fargo (WFC), and Citigroup (C) reported results ahead of Friday's open. Their quarterly results garnered negative responses despite beating earnings estimates. 

Fed Chair Powell's semiannual monetary policy testimony before the Senate Banking Committee and the House Financial Services Committee did not garner a big response from bond or equity markets. There were no surprises in his remarks, which featured an acknowledgement that the "likely next direction" of policy will be a loosening of policy, indicating a rate hike is not likely.

Losses in the mega cap space limited gains for the S&P 500 and Nasdaq Composite this week. The Vanguard Mega Cap Growth ETF (MGK) logged a 0.7% decline. Money was rotating away from mega caps due to profit taking activity and moving into areas of the market that have trailed so far this year.

The Russell 2000 jumped 6.0% this week and the S&P Mid Cap 400 gained 4.3%. Meanwhile, the Invesco S&P 500 Equal Weight ETF (RSP) logged a 3.0% gain. The top performing S&P 500 sectors included the rate-sensitive real estate (+4.4%) and utilities (+3.9%) sectors, along with the materials (+3.0%) and industrial (+2.4%) sector.

Nasdaq Composite: +22.6% YTD
S&P 500: +17.7% YTD
S&P Midcap 400: +8.6% YTD
Dow Jones Industrial Average: +6.1% YTD
Russell 2000: +6.0% YTD

Monday:

The S&P 500 (+0.1%) and Nasdaq Composite (+0.3%) closed at fresh record highs after a somewhat mixed session. The Russell 2000 (+0.6%) also closed with a gain while the Dow Jones Industrial Average declined 0.1%.

Mixed price action in the mega cap space contributed to the lackluster showing in the S&P 500 and Nasdaq Composite, but the underlying vibe was positive through the entire session. Advancers led decliners by an 11-to-10 margin at the NYSE and by a 4-to-3 margin at the Nasdaq.

Meanwhile, semiconductor stocks outperformed the broader market, providing a measure of support.

The muted action was also related to some hesitation in front of market-moving events this week.

Reviewing Monday's economic data:

• Consumer credit increased by $11.3 bln in May (Briefing.com consensus $9.5 bln) after increasing an upwardly revised $6.5 bln (from $6.4 bln) in April.
  
  • The key takeaway from the report is that revolving credit growth accelerated strongly after a slight contraction in May, so the question is whether consumers are turning to revolving credit because of need or increased optimism about economic prospects.

Tuesday: 

It was another lackluster day in the stock market. The three major indices traded slightly higher or slightly lower than prior closing levels, ultimately settling in mixed fashion. The price action led the S&P 500 (+0.1%) and Nasdaq Composite (+0.1%) further into record territory.

There wasn't a lot of conviction on either side of the tape in front of influential economic data this week. The June Consumer Price Index and Producer Price Index will be released Thursday and Friday, respectively.

The muted action is also in front of the start of earnings season.

Fed Chair Powell's testimony before the Senate Banking Committee did not garner a big reaction from the stock or bond market. Mr. Powell will also appear before the House Financial Services Committee on Wednesday. There were no surprises in his remarks, which featured an acknowledgement that the "likely next direction" of policy will be a loosening of policy, indicating a rate hike is not likely.

Tuesday's economic data was limited to the NFIB Small Business Optimism Survey, which rose to 91.5 in June from 90.5.

Wednesday:

The stock market had a solid showing. The major indices all jumped more than 1.0%, which had the S&P 500 (+1.02%) close above 5,600 for the first time. The session featured below-average volume related to hesitation in front of the June Consumer Price Index and the start of earnings season on Friday.

Strength in mega cap and semiconductor-related names boosted the broader market.

Bank stocks also outperformed the broader market in front of earnings results from some big banks on Friday.

Reviewing Wednesday's economic data:

• Weekly MBA Mortgage Applications Index dropped 0.2% after a 2.6% decline last week
• Wholesale inventories increased 0.2% in May (Briefing.com consensus 0.6%) following a revised 0.2% increase in April (from 0.1%)
• Weekly EIA Crude Oil Inventories showed a draw of 3.44 million barrels versus last week's draw of 12.16 million barrels

Thursday:

It was a solid day in the stock market following a pleasing CPI report for June, but the S&P 500 (-0.9%) and Nasdaq Composite (-2.0%) didn't reflect that. Total CPI deflated 0.1% month-over-month, slowing the pace of growth to 3.0% on a year-over-year basis from 3.3% in May. Core-CPI, which excludes food and energy, decelerated to 3.3% on a year-over-year basis from 3.4%.

The report sent market rates lower, reflecting optimism about the path of inflation and Fed policy.

Many stocks participated in a broad rally today, except mega caps and semiconductor stocks. Money was rotating away from these areas of the market due to profit taking activity after a big run of late.

This price action weighed on the S&P 500 and Nasdaq Composite while the Russell 2000 surged 3.6% and the S&P Mid Cap 400 logged a 2.5% gain. The equal-weighted S&P 500 registered a 1.2% gain.

Reviewing Thursday's economic data:

• Weekly Initial Claims 222K (Briefing.com consensus 234K); Prior was revised to 239K from 238K; Weekly Continuing Claims 1.852 mln; Prior was revised to 1.856 mln from 1.858 mln
  • The key takeaway from the report is that initial claims continued backtracking from a high that was reached in June, suggesting that the labor market is holding up well despite restrictive policy from the Fed.
• June CPI -0.1% (Briefing.com consensus 0.1%); Prior 0.0%; June Core CPI 0.1% (Briefing.com consensus 0.2%); Prior 0.2%
  • The key takeaway from the report is that the market heard exactly what it hoped for, as CPI deflated slightly in June, contributing to additional disinflation on a year-over-year basis. The 3.0% year-over-year growth rate matched the low from 2023, which will be seen as supportive of a case for a rate cut from the FOMC.

Friday:

The stock market finished the week with gains. The S&P 500 (+0.6%), Dow Jones Industrial Average (+0.6%), Nasdaq Composite (+0.6%), and Russell 2000 (+1.1%) pulled back from session highs before the close, but still logged solid gains.

The upside bias was driven by carryover momentum and strength in the semiconductor space.

Bank stocks were left out of the rally after quarterly results from JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC), which garnered negative responses despite beating earnings estimates.

The equity market had a muted response to this morning's hotter-than-expected Producer Price Index for June and upward revisions to the numbers in May. Total PPI was up 0.2% versus an expected 0.1% increase and Core PPI was up 0.4% versus an expected 0.1% increase.

Reviewing Friday's economic data:

• June PPI 0.2% (Briefing.com consensus 0.1%); Prior was revised to 0.0% from -0.2%; June Core PPI 0.4% (Briefing.com consensus 0.1%); Prior was revised to 0.3% from 0.0%
  • The key takeaway from the report is that the year-over-year rate for PPI and core PPI accelerated for the fifth month out of the last six with rising prices of services outweighing falling prices of goods in June.
• July Univ. of Michigan Consumer Sentiment - Prelim 66.0 (Briefing.com consensus 67.5); Prior 68.2
  • The key takeaway from the report was that it showed little change relative to June, as many consumers remained burdened by high prices, though inflation expectations dipped slightly.