The Week In Review
The stock market was on track to end Friday on its session high, but quarter-end selling during the final minutes of the action knocked the key indices off their afternoon highs. The S&P 500 added 0.2%, trimming this week's loss to 0.6%, while the Nasdaq Composite (-0.1%) underperformed, widening its weekly decline to 2.0%. Shielded from this week's underperformance in technology, the Dow Jones Industrial Average (+0.3%) shed just 0.2% for the week.
Equity indices began the day with modest gains that were a by-product of relative strength in groups like consumer discretionary (+0.6%), industrials (+0.8%), and energy (+0.4%) while top-weighted sectors like financials (-0.1%), technology (-0.1%), and health care (-0.1%) could not stay away from their flat lines. The three influential groups reluctantly followed the market higher in the afternoon, but a wave of selling in the final minutes of the session knocked the market to lows.
The discretionary sector received an early boost from NIKE (NKE 59.00, +5.83) after the apparel heavyweight beat fourth quarter expectations. The company issued cautious revenue guidance for the first quarter, but its top-line outlook for the full year was in line with expectations. In addition to reporting results, NIKE announced a pilot program to begin selling its products on Amazon (AMZN 968.00, -7.93). Shares of NIKE soared 11.0%, helping the Dow Jones Industrial Average spend the day ahead of its peers. Apparel retailers had a good showing overall and the SPDR S&P Retail ETF (XRT 40.74, +0.26) rose 0.6%.
Like the discretionary sector, industrials outperformed throughout the day. Transport stocks fueled the rally as the Dow Jones Transportation Average climbed 0.9%, extending its June gain to 4.4%.
The energy sector (+0.4%) was not far behind, catching a bid amid a 2.6% spike in crude oil, which jumped to $46.03/bbl and snapped its five-week skid. WTI crude gained 7.0% for the week while the energy sector advanced 0.7%, finishing only behind financials (week-to-date +3.3%).
The lightly-weighted materials sector (+0.5%) also finished ahead of the broader market while the remaining groups settled closer to their flat lines. Technology saw an intraday gain, which vanished during the late-afternoon slide. Micron (MU 29.86, -1.61) reported better than expected quarterly results, but the stock slid 5.1% nonetheless. The broader PHLX Semiconductor Index fell 0.5%, losing 4.9% for the week.
Treasuries held modest losses in morning action before retreating into the close. The benchmark 10-yr yield rose three basis points to 2.30%.
Economic data included Personal Income/Spending, Chicago PMI, and Michigan Sentiment:
Personal income increased 0.4% in May (Briefing.com consensus +0.3%) after a downwardly revised 0.3% increase (from 0.4%) for April. Personal spending was up 0.1%, as expected, following an unrevised 0.4% increase in April. The core PCE Price Index, which excludes food and energy, increased 0.1%, as expected.
The key takeaway is that inflation moved away from the Fed's longer-run inflation target of 2.%, not toward it as the Fed is anticipating. That will help solidify the market's belief that the Fed doesn't have enough data-based scope to raise the fed funds rate until perhaps its December meeting at the earliest.
The Chicago Business Barometer, otherwise known as the Chicago Purchasing Managers Index, jumped to 65.7 in June (Briefing.com consensus 57.8) from 59.4 in May.
The key takeaway from the report is that the New Orders Index served as the springboard for the June jump, rising from 61.4 to 71.9 and signaling solid manufacturing demand in the Chicago Fed region.
The University of Michigan's Index of Consumer Sentiment was revised from the preliminary reading of 94.5 for June to 95.1 with the final reading. The latter was above the briefing.com consensus estimate of 94.7, but below the final May reading of 97.1.
The key takeaway from the report is that consumer confidence has dipped to its lowest level since the election, yet it still remains at favorable levels as the average level of 96.8 for the first half of the year was the best half-year average since the second half of 2000.
Monday's economic data will feature the 10:00 ET release of May Construction Spending and June ISM Index while June auto and truck sales will be reported throughout the abbreviated session, which will end at 13:00 ET.
Nasdaq Composite +14.1% YTD
S&P 500 +8.2% YTD
Dow Jones Industrial Average +8.0% YTD
Russell 2000 +4.3% YTD
Week In Review: Nasdaq Stumbles
The stock market endured some volatility, which resulted in a mixed finish for the major indices. Relative weakness among technology stocks sent the Nasdaq Composite down 2.0% for the week while the S&P 500 surrendered 0.6%. The price-weighed Dow Jones Industrial Average (-0.2%) ended the week little changed.
The influential financial sector opened the week on a positive note, ending its four-session losing streak with a gain of 0.5%. However, negative performances from the heavily-weighted technology and health care groups mitigated the bullish influence of financials, leaving the benchmark index just a tick above its unchanged mark. Meanwhile, crude oil registered its third-consecutive win, climbing 0.8%.
Things got a bit more interesting on Tuesday, especially in the global bond market, where sovereign yields jumped after European Central Bank President Mario Draghi provided an upbeat assessment of eurozone inflation and growth trends. The financial group outperformed, once again, amid a steepening of the yield curve, but the ten remaining sectors finished in the red with the technology group pacing the retreat.
The midweek session brought some relief as investors bought the dip and put the S&P 500 back at its flat line for the week. The financials and technology sectors led the charge, but strength was broad-based with nine sectors settling in the green. The improvement in risk sentiment came after the ECB said that Mr. Draghi's Tuesday remarks were misinterpreted as hawkish while they were meant to strike a balance. However, longer-dated Treasuries and German bunds held their ground.
The relief rally didn't last long as the market reversed and set a fresh low for the week on Thursday. The technology sector fell to heavy profit-taking, dropping 1.8%. Selling was broad-based with only the financials and energy spaces escaping the session with wins. Banks underpinned the financial group after the Federal Reserve approved the capital plans of all 34 banks required to partake in the annual stress test.
Thursday also saw more selling in the global bond market. Treasuries tumbled in a curve-steepening trade while German bunds slid following hotter than expected inflation data out of Germany.
Friday's session featured a weak rebound in the broader market, as financials, health care, and technology struggled. NIKE (NKE) surged more than 10.0% after beating earnings expectations, which helped keep the market above water.
The fed funds futures market still points to the December FOMC meeting as the most likely time for the next rate-hike announcement with an implied probability of 54.4%, up from last week's 51.3%.