To say the least, the stock market has been in good spirits this week as investor sentiment has been bolstered by some pleasing inflation data, a drop in market rates, and a broadening out of the buying interest to include stocks not named Apple (AAPL), Microsoft (MSFT), Alphabet (GOOG), Amazon.com (AMZN), NVIDIA (NVDA), Tesla (TSLA), and Meta Platforms (META).
That’s not to say those “Magnificent Seven” stocks have not been bought, only that they aren’t being seen as the only buying option in town like they were for most of the first half of the year.
Entering today, the Russell 2000 is up 4.6% for the week, the S&P Midcap 400 is up 3.7%, the Nasdaq Composite is up 3.5%, and the Invesco S&P 500 Equal-Weight ETF (RSP) is up 3.0% versus a tidy 2.5% gain for the market-cap weighted S&P 500.
It doesn’t appear either as if the buyers are ready to walk away. By the same token, it doesn’t appear as if the sellers are ready to make some serious waves either.
Currently, the S&P 500 futures are up nine points and are trading 0.2% above fair value, the Nasdaq 100 futures are up seven points and are trading 0.1% above fair value, and the Dow Jones Industrial Average futures are up 187 points and are trading 0.6% above fair value.
The positive disposition of the futures market follows a batch of better-than-expected earnings results and/or guidance from JPMorgan Chase (JPM), UnitedHealth (UNH), Wells Fargo (WFC), Citigroup (C), and BlackRock (BLK).
Dow components JPM and UNH are up 2.5% and 2.9%, respectively, which is putting some extra pep in the step of the Dow Jones Industrial Average futures along with a UBS upgrade of fellow Dow component Microsoft (MSFT) to Buy from Neutral. Shares of MSFT are up 1.6%.
These are higher-priced stocks, so they have a higher impact on the movement of the price-weighted Dow Jones Industrial Average.
Otherwise, there is a more subdued tone in the broader market, which likely reflects nothing more than some thinking that the market is due to cool off a bit after its hot run this week. The Treasury market seems to be in the same mindset.
A short time ago, there was another round of market-friendly inflation news, yet Treasury yields are backing up in its wake (and had already been backing up ahead of the report).
Specifically, import prices declined 0.2% in June following an upwardly revised 0.4% decline (from -0.6%) in May. Excluding fuel, import prices were down 0.4% following an upwardly revised 0.0% (from -0.1%) in May. Export prices, in turn, were down 0.9% in June following an unrevised 1.9% decline in May. Excluding agricultural products, export prices were down 0.9% following a downwardly revised 1.9% decline (from -1.8%) in May.
On a year-over-year basis, import prices were down 6.1%, versus being up 10.7% for the 12-month period ending June 2022, and export prices were down 12.0%, versus up 18.6% for the 12-month period ending June 2022.
The 2-yr note yield, down 32 basis points for the week coming into today, is up six basis points to 4.67%, and the 10-yr note yield, down 29 basis points for the week coming into today, is up three basis points to 3.79%.
Notwithstanding the pleasing CPI and PPI data earlier this week, Fed Governor Waller (FOMC voter) said he sees no reason why the Fed should not raise rates again at its July FOMC meeting and still thinks there is likely to be two rate hikes over the next four FOMC meetings into year end.
The fed funds futures market still believes it is one-and-done for the Fed, so we can see where a battle line is being drawn. In any case, the stock market is winning the fight for now, because it remains evident in the strong labor market that the economy is still battling well in the wake of the Fed’s prior rate hikes.
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Originally Posted July 14, 2023 – Good earnings news keeps pep in market’s step
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