Weekly Wrap

The stock market logged solid gains since last Friday. The Dow Jones Industrial Average and Russell 2000 each closed 2.9% higher, the S&P 500 jumped 3.9%, and the Nasdaq Composite climbed 5.3%. 

The volatile action exhibited thus far in August was precipitated by a July jobs report that stirred concerns about a weakening economic environment and labor market. So, this week's release of economic data that had the market feeling good about the economic environment and labor market invited strong buying activity.

The pleasing economic releases included the Producer Price Index for July, which showed disinflation in total and core PPI, the Consumer Price Index for July, which was in-line with expectations, the Retail Sales report for July, which was much better than expected, and the weekly jobless claim report, which reflected ongoing strength in the labor market. 

A disappointing housing starts and building permits report for July on Friday didn't deter the strong rally this week. 

Solid earnings results and commentary about the consumer from Walmart (WMT), along with Cisco's (CSCO) solid fiscal Q4 operating performance, contributed to the upside bias this week.

In other corporate news, Dow component Home Depot (HD) closed 3.9% higher this week despite reporting below-consensus guidance.

Starbucks (SBUX) was in the headlines after news that CEO Laxman Narasimhan has stepped down and will be replaced by Chipotle (CMG) CEO Brian Niccol.

Kellanova (K) also made news after Mars confirmed it will acquire Kellanova for $83.50/share in cash, or total consideration of $35.9 billion, including debt.

Alphabet (GOOG) settled slightly lower in the week despite other mega caps outperforming after a Bloomberg report that the Department of Justice may be looking at breaking up the company following last week's court ruling that Alphabet violated search-related antitrust laws.

All 11 S&P 500 sectors closed higher led by consumer discretionary (+5.2%), information technology (+7.5%), and financials (+3.2%).

Monday:

The stock market had a somewhat lackluster session after last week's volatile price action. The S&P 500 closed less than one point above its prior closing level while the Dow Jones Industrial Average (-0.4%) and Nasdaq Composite (+0.2%) closed slightly lower and slightly higher than Friday's settlement.

The muted action was due to hesitation in front of market-moving economic releases. The Producer Price Index (Tuesday), the Consumer Price Index (Wednesday), Retail Sales (Thursday), and Housing Starts (Friday) are among the influential reports.

The energy sector reacted to a jump in oil prices ($79.91/bbl, +3.13, +4.1%) on geopolitical angst after the recent death of Hamas political leader Ismail Haniyeh stirred concerns about a retaliation from Iran (and/or its proxies) against Israel.

The New York Fed's Survey of Consumer Expectations showed that median one- and five-year-ahead inflation expectations were unchanged in July at 3.0% and 2.8%, respectively, while median three-year-ahead inflation expectations declined by 0.6 percentage point to 2.3%. This was the lowest level since the survey's started in June 2013.

Reviewing Monday's economic data:

• The Treasury Budget for July showed a deficit of $243.7 billion compared to a deficit of $220.8 billion in the same period a year ago. The July deficit resulted from outlays ($574.1 billion) exceeding receipts ($330.4 billion). The Treasury Budget data is not seasonally adjusted so the July deficit cannot be compared to the June deficit, which was revised higher to $70.9 billion (from -$66.0 billion).
  • The key takeaway from the report is that the U.S. government continues to run large budget deficits, driven in part by net interest costs that are outweighing defense spending.

Tuesday:

The stock market rallied, leaving all the major indices higher by at least 1.0%. Advancers led decliners by a 4-to-1 margin at the NYSE and by a nearly 3-to-1 margin at the Nasdaq. The positive bias followed pleasing Producer Price Index data for July.

The welcome disinflation in the report contributed to optimism around the Fed's rate cut path, which sent yields lower and boosted equities.

Treasury yields were already lower following some weak new loan data out of China and some weak economic sentiment data out of the eurozone and dropped further in response to the PPI data.

Dow component Home Depot (HD) closed with a solid gain after trading down as much as 1.9% in response to below-consensus guidance.

Fellow discretionary-related name Starbucks (SBUX) was the biggest advancer in the S&P 500, surging on the news that CEO Laxman Narasimhan has stepped down and will be replaced by Chipotle (CMG) CEO Brian Niccol.

Reviewing Tuesday's economic data:

• July NFIB Small Business Optimism 93.7; Prior 91.5
• July Core PPI 0.0% (Briefing.com consensus 0.2%); Prior was revised to 0.3% from 0.4%, July PPI 0.1% (Briefing.com consensus 0.1%); Prior 0.2%
  • The key takeaway from the report is the disinflation trend in total and core PPI, as that is moving in a necessary direction to drive a rate cut by the Fed.

Wednesday:

The stock market exhibited more muted action following the in-line CPI print compared to the rally after the pleasing PPI print. The S&P 500 (+0.4%) and Dow Jones Industrial Average (+0.6%) closed with gains while the Nasdaq Composite settled fractionally higher and the Russell 2000 logged a 0.5% decline.

The lackluster response to the CPI print in equities was due in part to some good news being priced in after the PPI data.

Kellanova (K) was the top performing stock in the S&P 500 after news that Mars will acquire Kellanova for $83.50/share in cash, or total consideration of $35.9 billion, including debt.

Alphabet (GOOG) was an influential laggard after a Bloomberg report that the Department of Justice may be looking at breaking up the company following last week's court ruling that Alphabet violated search-related antitrust laws.

Reviewing Wednesday's economic data:

• Weekly MBA Mortgage Applications Index 16.8%; Prior 6.9%
• July CPI 0.2% (Briefing.com consensus 0.2%); Prior -0.1%, July Core CPI 0.2% (Briefing.com consensus 0.2%); Prior 0.1%
  • The key takeaway from the report is that it points to ongoing disinflation; hence, it won't change the market's belief that the Fed will cut rates by 25 basis points in September even though CPI inflation is comfortably above the Fed's 2% goal, which is oriented around PCE price inflation that is currently at 2.5%.

Thursday:

The stock market registered solid gains in a broad advance. The Dow Jones Industrial Average rose 1.4%, the S&P 500 settled 1.6% higher, the Nasdaq Composite registered a 2.3% gain, and the Russell 2000 climbed 2.4%.

The volatile action exhibited thus far in August was precipitated by a July jobs report that stirred concerns about a weakening economic environment and labor market. So, the release of economic data that had the market feeling good about the economic environment and labor market invited strong buying activity.

Market participants were reacting to a much better than expected Retail Sales Report for July, which bodes well for consumer spending and earnings prospects, and a pleasing weekly jobless claims report, which calmed fears about a weakening labor market.

Solid earnings results and commentary about the consumer from Walmart (WMT), along with Cisco's (CSCO) solid fiscal Q4 operating performance, contributed to the upside bias.

Just about everything participated in upside moves.

Reviewing Thursday's economic data:

• August Philadelphia Fed Index -7.0; Prior 13.9
• July Retail Sales 1.0% (Briefing.com consensus 0.3%); Prior was revised to -0.2% from 0.0%, July Retail Sales Ex-Auto 0.4% (Briefing.com consensus 0.2%); Prior was revised to 0.5% from 0.4%
  • The key takeaway from the report is that the increase in retail sales outpaced the rate of inflation in July, which connotes an understanding that the improvement in retail sales was driven by increased demand on top of price increases.
• Weekly Initial Claims 227K (Briefing.com consensus 232K); Prior was revised to 234K from 233K, Weekly Continuing Claims 1.854 mln; Prior was revised to 1.871 mln from 1.875 mln
  • The key takeaway from the report is that initial claims remain well below levels typically associated with recession conditions.
• July Import Prices 0.1%; Prior 0.0%
• July Import Prices ex-oil 0.1%; Prior 0.2%
• July Export Prices 0.7%; Prior was revised to -0.3% from -0.5%
• July Export Prices ex-ag. 1.0%; Prior was revised to -0.4% from -0.6%
• August NY Fed Empire State Manufacturing -4.7; Prior -6.6
• July Capacity Utilization 77.8% (Briefing.com consensus 78.6%); Prior was revised to 78.4% from 78.8%, July Industrial Production -0.6% (Briefing.com consensus 0.1%); Prior was revised to 0.3% from 0.6%
  • The key takeaway from the report is the understanding that it was depressed by Hurricane Beryl, which reduced industrial production by an estimated 0.3 percentage point and manufacturing output by an estimated 0.3 percent. Industrial production wasn't strong in July, but taking the effects of the hurricane into account, it wasn't as weak as it seems either.
• June Business Inventories 0.3% (Briefing.com consensus 0.2%); Prior 0.5%
• August NAHB Housing Market Index 39 (Briefing.com consensus 43); Prior was revised to 41 from 42

Friday: 

The stock market exhibited lackluster action. The S&P 500 (+0.2%), Nasdaq Composite (+0.2%), Dow Jones Industrial Average (+0.2%), and Russell 2000 (+0.2%) ultimately settled with modest gains near their best levels of the day.

The limited action followed strong gains this week that brought the market back to levels seen in front of last week's sharp selloff.

A disappointing housing starts and building permits report for July and a negative response to earnings results from chip equipment maker Applied Materials (AMAT) also acted as limiting factors for equities.

Even at the individual level, movement was relatively muted in stocks.

None of the S&P 500 sectors moved more than 0.6% in either direction.

Reviewing Friday's economic data:

• July Building Permits 1.396 mln (Briefing.com consensus 1.440 mln); Prior was revised to 1.454 mln from 1.446 mln, July Housing Starts 1.238 mln (Briefing.com consensus 1.350 mln); Prior was revised to 1.329 mln from 1.353 mln
  • There is some chatter that Hurricane Beryl had some influence over the disappointing data, yet that isn't a totally adequate excuse given the decline in single-unit starts and permits in the West where Hurricane Beryl had zero impact. The key takeaway, then, is that conditions in the residential construction market remain soft with higher rates acting as a constraint.
• August Univ. of Michigan Consumer Sentiment - Prelim 67.8 (Briefing.com consensus 66.7); Prior 66.4
  • The key takeaway from the report is that sentiment in August was swayed by political developments, yet the take-home point is that inflation is still the top concern among consumers.