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End of Day Brief - Tuesday July 13 - Stocks pullback a bit

Dow34888.79-107.39(-0.31%)
Nasdaq14677.65-55.59(-0.38%)
SP 5004369.21-15.42(-0.35%)
10-yr Note -26/321.414
NYSEAdv 838 Dec 2413 Vol 780.0 mln
NasdaqAdv 1050 Dec 3212 Vol 4.5 bln


Industry Watch

Strong: Information Technology
Weak: Financials, Consumer Discretionary, Real Estate, Materials, Industrials


Moving the Market

-- Relatively weak 30-yr bond auction took market lower, Treasury yields spiked in response

-- June CPI report was hotter than expected (again)

-- JPMorgan Chase (JPM) and Goldman Sachs (GS) closed lower despite beating top and bottom-line estimates


Stocks pullback a bit after inflation numbers

Dow -107.39 at 34888.79, Nasdaq -55.59 at 14677.65, S&P -15.42 at 4369.21

[BRIEFING.COM] The S&P 500 (-0.4%), Nasdaq Composite (-0.4%), and Dow Jones Industrial Average (-0.3%) recorded modest losses on Tuesday, easing back from record territory as investors assessed hot CPI data for June, negative reactions to bank earnings, and a relatively weak 30-yr bond auction. The Russell 2000 fell 1.9%.

To start, total CPI rose 0.9% m/m in June (Briefing.com consensus 0.5%) and core CPI, which excludes food and energy, also rose 0.9% (Briefing.com consensus 0.5%). On a year-over-year basis, they were running noticeably hot at 5.4% and 4.5%, respectively. The yr/yr increase in core CPI was the largest since November 1991.

Interestingly, the Treasury market barely reacted to the inflation data, and the S&P 500 and Nasdaq were able to set record intraday highs largely due to leadership from mega-caps like Apple ($AAPL 145.64, +1.14, +0.8%) and Microsoft ($MSFT 280.98, +3.66, +1.3%). The mega-cap strength overshadowed an advancing/declining line that easily favored declining issues.

It wasn't until the results of a weaker-than-average $24 bln 30-yr bond auction were released at 1:00 p.m. ET that Treasury yields spiked, which ultimately took some wind out of the growth stocks. The 10-yr yield settled higher by five basis points to 1.42% while the 2-yr yield increased three basis points to 0.25%.

Declining issues widened their advantage over advancing issues to a 3:1 margin (versus 2:1 before the bond auction results). The S&P 500 consumer discretionary (-1.2%), financials (-1.1%), and real estate (-1.3%) sectors lost more than 1.0% while information technology (+0.4%) was the only sector that closed higher.

The financials sector was unable to key off the higher Treasury yields, as investor sentiment remained hampered by disappointing reactions to better-than-expected earnings results from JPMorgan Chase ($JPM 155.65, -2.35, -1.5%) and Goldman Sachs ($GS 375.89, -4.52, -1.2%).

PepsiCo ($PEP 152.96, +3.46, +2.3%) was an earnings standout, additionally supported by upside FY21 EPS guidance. Boeing ($BA 228.20, -10.09, -4.2%), meanwhile, fell 4% after disclosing it will slow production of the 787 Dreamliner as it works to resolve a new issue surrounding the plane.

Given the finicky price action in Treasuries, the market will look to see what Fed Chair Powell says tomorrow in his semiannual testimony on monetary policy before Congress. San Francisco Fed President Daly (FOMC voter) told CNBC that the inflation spikes have been expected and the Fed is in a good position to taper asset purchases as soon as later this year.

WTI crude futures settled higher by 1.5%, or $1.14, to $75.24/BBL. The U.S. Dollar Index advanced 0.6% to 92.78.

Reviewing Tuesday's economic data, which featured the Consumer Price Index for June:

  • Total CPI increased 0.9% month-over-month (Briefing.com consensus +0.5%) -- the largest one-month increase since June 2008 -- and core CPI, which excludes food and energy, also increased 0.9% (Briefing.com consensus 0.5%). On a year-over basis, total CPI is up 5.4% -- the largest increase since August 2008 -- and core CPI is up 4.5%, which is the largest increase since November 1991.
    • The key takeaway from the report is that the price increases in June were broad based, featuring a 10.5% increase in the index for used cars and trucks, a 0.8% increase in the food at home index, a 2.5% increase in the gasoline index, and a 0.5% increase in the household index. That should put the Fed's "transitory inflation" narrative to the test, particularly with total CPI running at an annualized rate of 7.2% over the last six months.
  • The Treasury Budget for June showed a $174.2 bln deficit, versus an $864.1 bln deficit in the same period a year ago. The budget data is not seasonally adjusted, so the June deficit can't be compared to the May deficit of $131.9 bln. June marked the 21st consecutive month that the Treasury has seen a budget deficit.
    • The fiscal year-to-date budget deficit is $2.24 trln versus -$2.74 trln for the same period a year ago. The budget deficit over the last 12 months is $2.63 trln versus -$3.31 trln in May.
  • The NFIB Small Business Optimism Index for June increased to 102.5 from 99.6 in May.

Looking ahead, investors will receive the Producer Price Index for June, the Fed's Beige Book for July, and the weekly MBA Mortgage Applications Index on Wednesday.

  • S&P 500 +16.3% YTD
  • Dow Jones Industrial Average +14.0% YTD
  • Nasdaq Composite +13.9% YTD
  • Russell 2000 +13.4% YTD

Source: (Briefing.com)

Disclosure: I may trade in the ticker symbols mentioned, both long or short. My articles represent my personal opinion and analysis and should not be taken as investment advice. Readers should do their own research before making decisions to buy or sell securities. Trading and investing include risks, including loss of principal.

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