Market Update - February 10

The stock market registered broad based losses on Monday. The major indices slid to session lows early in the day in response to a jump in Treasury yields after the 10:00 ET economic data was released. The market regained some upside traction, though, thanks to relative strength in some mega caps and semiconductor stocks.

The PHLX Semiconductor Index (SOX) jumped 1.2% , due in part to strength in ON Semiconductor (ON) following pleasing earnings and/or guidance.

Strength in some of the aforementioned names boosted the heavily-weighted S&P 500 information technology sector to a 0.6% gain while nine of the sectors registered a decline. The materials sector was the worst performer, sinking 2.5% on weakness in shares of Air Products (APD) following disappointing earnings.

The overall negative price action in the stock market was largely in response to the price action in Treasuries, which have logged steep declines over the last few sessions in response to ongoing strength in economic data of late that has the market repricing rate cut expectations. This also follows comments from Fed Chair Jerome Powell over the weekend, who said on 60 Minutes that the Fed needs to see more evidence that inflation is moving sustainably down to its 2% target before lowering rates.

Monday morning's release of the January ISM Services PMI featured an acceleration in services sector activity in January, replete with a pickup in new orders, employment, and prices.

Reviewing Monday's economic data:

• The S&P Global U.S. Services PMI rose to 52.5 in the final January reading from 51.4.
• The ISM Services PMI increased to 53.4% in January (Briefing.com consensus 52.0%) from 50.5% in December. The dividing line between expansion and contraction is 50.0%, so the January reading connotes services sector activity expanding at a faster pace than in December. January marked the 13th consecutive month of growth for the services sector.
  • The key takeaway from the report is that the largest sector of the U.S. economy saw an acceleration in activity in January that was accompanied by a pickup in new orders, employment, and prices, which isn't the stuff of rate cuts.

The stock market had a solid showing. Advancing issues led declining issues by a 5-to-2 margin at the NYSE and by a nearly 2-to-1 margin at the Nasdaq. Index level performance for the S&P 500 and Nasdaq Composite was a little shaky, though, due to losses in some heavily-weighted components. The S&P 500 was down 0.2% at its low today and the Nasdaq Composite was down as much as 0.5%.

Mega caps and semiconductor shares were relatively weak after their recent outperformance, falling under some profit-taking activity.

Weak semiconductor shares also weighed on the info tech sector and left the PHLX Semiconductor Index with a 1.1% loss. Coherent (COHR) went against the grain in the SOX with a big earnings-related move higher while shares of Amkor (AMKR) traded down after reporting quarterly results.

Other influential stocks that reported earnings included DuPont (DD) and Eli Lilly (LLY). The former propelled the materials sector to a 1.7% gain, which was the largest increase among the nine sectors that finished higher.

In other corporate news, shares of New York Community Bank (NYCB) closed sharply lower after a Bloomberg report that the bank was pressured by regulator to cut its dividend.

There was no US economic data of note on Tuesday.

The stock market is reportedly overbought, overvalued, and due for a pullback. Granted not everyone sees it that way, which is why the expected pullback still didn't happen. On the contrary, the major indices found higher ground, supported by mega-cap leadership and their own resilience to selling interest.

The market received added support from outsized moves in the likes of Enphase Energy (ENPH), Emerson Electric (EMR), Chipotle Mexican Grill (CMG), Ford (F), and CVS Health (CVS) following their earnings reports.

Dow component Amgen (AMGN) was a notable laggard following its earnings results.

Reviewing Wednesday's economic data:

• MBA Mortgage Applications Index +3.7% wk/wk with refinance applications +12% and purchase applications -1%.
• The trade deficit widened to $62.2 billion in December (Briefing.com consensus -$62.0 billion) from an upwardly revised $61.9 billion (from -$63.2 billion) in November. Exports were $3.9 billion more than
• November exports and imports were $4.2 billion more than November imports.
  • The key takeaway from the report is that exports and imports both increased in a welcome sign for global trade.
• Consumer Credit increased by $1.6 bln in December (Briefing.com consensus $16.3 bln) following a downwardly revised $23.5 bln (from $23.8 bln) in November. Revolving credit increased by $1.1 bln in December to $1.314 trln. Nonrevolving credit increased by $0.5 bln to $3.696 trln.
  • The key takeaway from the report is that the slowdown in credit expansion, both for revolving and nonrevolving debt, fits with banks tightening their lending standards and demand for credit lessening in the face of higher interest rates.

It was a solid day for the stock market. The Russell 2000 outperformed other indices throughout the session, gaining 1.4% by the close.

The absence of selling pressure amid growing expectations for a pullback among some participants acted as its own upside catalyst. Still, upside moves were relatively modest for most of the market. The Invesco S&P 500 Equal Weight ETF (RSP) closed 0.2% higher.

Outsized moves were mostly limited to individual stocks that reported earnings since Wednesday's close, which garnered mixed responses. Arm Holdings (ARM) jumped nearly 50% after reporting earnings and Dow component Walt Disney (DIS) also logged a large gain on pleasing quarterly results.

Meanwhile, shares of PayPal (PYPL) faced selling pressure after disappointing below-consensus guidance.

Treasuries settled with losses despite a strong $25 billion 30-yr bond offering, which followed the strong responses to this week's $54 billion 3-yr note auction and $42 billion 10-yr note auction.

This price action was partially a reaction to Thursday morning's release of the weekly jobless claims report, which showed a decrease in the number of claims, fitting with the market's emerging view that the Fed may stay restrictive for longer.

Reviewing Thursday's economic data:

• Weekly Initial Claims 218K (Briefing.com consensus 218K); Prior was revised to 227K from 224K; Weekly Continuing Claims 1.871 mln; Prior was revised to 1.894 mln from 1.898 mln
  • The key takeaway from the report is the continuing low level of initial claims, which is a reflection of an economy not showing the stress of a big drop-off in demand.
• December Wholesale Inventories 0.4% (Briefing.com consensus 0.4%); Prior was revised to -0.4% from -0.2%

The S&P 500 closed above 5,000 for the first time in a fairly broad advance.

There still has not been any concerted selling interest despite reports that the market is overbought in the short-term, which has acted as its own upside catalyst. The market also drew support from gains in the semiconductor and mega cap spaces.

The S&P 500 consumer staples sector was a laggard, dropping 0.9%. This was due in part to shares of PepsiCo (PEP) falling 3.6% after reporting earnings.

There was no U.S. economic data of note on Friday, but the annual CPI revisions were released at 8:30 ET, garnering added attention due to potential implications for the Fed's rate cut path. The revisions were relatively friendly since they did not alter the market's view on inflation much. Reactions from both the bond and equity markets were muted.