Market Update - June 10

The stock market closed on a softer note after Friday's broad-based rally. Things were more mixed in the early going, though, with relative strength from mega cap stocks supporting the broader market. The major indices ultimately settled near their worst levels of the day. Still, there wasn't any concerted selling interest and index losses were relatively modest.

The market started to fade around 1:00 p.m. ET after Apple (AAPL), which held its Worldwide Developers Conference on Monday, introducing its Vision Pro mixed reality headset, also started to fade along with other mega cap stocks. Apple had been up as much as 2.2% earlier in the session. The Vanguard Mega Cap Growth ETF (MGK), up as much as 0.8%, fell 0.1% while the Invesco S&P 500 Equal Weight ETF (RSP) declined 0.3%.

Growth concerns were part of the market narrative. Those concerns were piqued by the May ISM Non-Manufacturing Index, which fell to 50.3% from 51.9% in April. The dividing line between expansion and contraction is 50.0%.

Weakness in bank stocks was another factor holding the broader market in check. This occurred after The Wall Street Journal reported that large banks could face a 20% increase in capital requirements.

Reviewing Monday's economic data:

• The IHS Markit Services PMI rose to 54.9 in the final reading for May from 53.6.
• The ISM Non-Manufacturing Index for May decreased to 50.3% (Briefing.com consensus 52.3%) from 51.9% in April. The dividing line between expansion and contraction is 50.0%, so the May reading reflects continued growth in the services sector, but at a slower pace than the prior month.
  • The key takeaway from the report is that the majority of respondents indicate business conditions are currently stable, yet concerns relative to the slowing economy have been noted, evidenced in part by the downturn in the employment index into contraction territory after three months of growth.
• Factory orders increased 0.4% month-over-month in April (Briefing.com consensus 0.8%) following a downwardly revised 0.6% increase (from 0.9%) in March. Shipments of manufactured goods decreased 0.4% month-over-month after declining 0.6% in March.
  • The key takeaway from the report is that business spending picked up nicely from March.

The stock market started this holiday-shortened week on a mostly softer note. Initially, the market seemed poised for a stronger showing after participants learned over the weekend that President Biden and House Speaker McCarthy reached a debt ceiling agreement. Enthusiasm quickly dissipated, though, with uncertainty about the deal passing in both chambers of Congress still weighing on sentiment.

The market had a decent showing on Tuesday. The Russell 2000 paced index level gains while lagging mega cap stocks acted as a drag on the S&P 500, Dow Jones Industrial Average, and Nasdaq. The three major indices were all in negative territory around midday, but rebounded and ended near their best levels by the close.

The strength in the broader market was reflected in the 0.7% gain recorded by the Invesco S&P 500 Equal Weight ETF (RSP). The market-cap weighted S&P 500 rose 0.2%.

Strength from regional bank shares, along with energy stocks, helped to propel the Russell 2000 to a robust 2.7% gain. The SPDR S&P Regional Banking ETF (KRE) rose 5.0% and the SPDR S&P Bank ETF (KBE) rose 4.4%. Those moves were partially influenced by Goldman Sachs lowering its probability of a recession in the next 12 months to 25% from 35%, citing receding banking risks.

Separately, Coinbase Global (COIN) shares tumbled following news that the SEC is charging Coinbase for operating as an unregistered securities exchange, broker, and clearing agency.

There was no U.S. economic data of note on Tuesday.

Also, worries about Fed policy came into focus after Richmond Fed President Thomas Barkin (not an FOMC voter) said he has one of the higher rate forecasts on the committee and he hasn't backed off of that, according to CNBC.

Mega cap stocks, along with other growth stocks, were a big source of support and helped to drive the relative outperformance of the S&P 500 and Nasdaq. The S&P 500 was able to maintain a position above 4,200 on a closing basis after slipping below that level a few times today.

Reviewing Tuesday's economic data:

• The FHFA Housing Price Index rose by 0.6% in March from a revised 0.7% increase in February (from 0.5%)
• The S&P Case-Shiller Home Price Index declined 1.1% in March (Briefing.com consensus -2.3%) following a 0.4% increase in February
• The Conference Board's Consumer Confidence Index dipped to 102.3 in May (Briefing.com consensus 99.5) from an upwardly revised 103.7 (from 101.3) in April. In the same period a year ago, the index stood at 103.2.
  • The key takeaway from the report is that expectations remain "gloomy," which incorporates a notable worsening in the outlook in May among consumers over 55 years of age.

Wednesday's trade shaped up to be fairly upbeat despite a mixed performance at the index level. Considering the scope of mega cap losses, the major indices held up well on higher than average trading volume. The Russell 2000 was a winning standout again, gaining 1.8%.

Amazon.com (AMZN), Alphabet (GOOG), Microsoft (MSFT), and NVIDIA (NVDA) all saw large declines, falling prone to profit taking after a big run and to some valuation angst. Apple (AAPL) also logged a loss for the session. The Vanguard Mega Cap Growth ETF (MGK) fell 1.7%.

Still, the broader market exhibited relative strength. The Invesco S&P 500 Equal Weight ETF (RSP) rose 0.7% as money flowed away from the mega cap space and into other areas with a bias toward economically-sensitive sectors. The market-cap weighted S&P 500, which ran into some resistance after hitting 4,299 in the early going, declined by a modest 0.4%.

Rising market rates were another limiting factor for mega caps and other growth stocks. Treasuries saw an uptick in selling after the Bank of Canada surprised market participants with a 25 basis points rate hike to 4.75%; however, losses were pared late in the day as the mega cap stocks tracked toward their lows for the session. The 2-yr note yield rose two basis points to 4.55% and the 10-yr note yield rose nine basis points to 3.78%.

Reviewing Wednesday's economic data:

• The weekly MBA Mortgage Applications Index fell 1.4% with purchase applications declining 2.0% and refinancing applications falling 1.0%.
• The U.S. trade deficit widened to $74.6 billion in April (Briefing.com consensus -$75.3 billion) from an upwardly revised $60.6 billion (from -$64.2 billion) in March, which was recalculated with annual revisions to the goods and services series. The widening deficit in April was the result of exports being $9.2 billion less than March exports and imports being $4.8 billion more than March imports.
  • The key takeaway from the report is the drop in exports, which reflects weakening demand abroad for U.S. goods.
• The weekly EIA Crude Oil Inventories showed a draw of 451,000 barrels after a build of 4.49 million barrels last week.
  Consumer credit increased by $23.0 bln in April (Briefing.com consensus $21.0 bln) following a downwardly revised $22.9 bln (from $26.5 bln) in March.
  • The key takeaway from the report is that the pace of credit expansion in April was driven by revolving credit, which is apt to stoke concerns that consumers, battling inflation, are relying more on the use of credit cards to maintain their spending activity.

It shaped up to be a decent day for the stock market. True to 2023 form, mega cap stocks were driving a lot of the action in the early going while the broader market showed some weakness. By the close, however, more stocks were participating in the upside moves.

Still, gains in the mega cap space were integral to index performance. Apple (AAPL), Amazon.com (AMZN), which was initiated by Wells Fargo with an Overweight rating, NVIDIA (NVDA), and Tesla (TSLA), which recorded its tenth straight gain, were among the biggest support factors. The Vanguard Mega Cap Growth ETF (MGK) rose 1.0%.

The Invesco S&P 500 Equal Weight ETF (RSP), which had been down 0.6%, closed flat while the market-cap weighted S&P 500, which was flirting with the 4,300 level again, rose 0.6% and finished near its highs of the day.

Market participants were also reacting to the weekly initial jobless claims report, which came in at the highest level (261,000) since November 2021, fueling buying interest in the Treasury market.

Reviewing Thursday's economic data:

• Initial jobless claims for the week ending June 3 increased 28,000 to 261,000 (Briefing.com consensus 237,000) while continuing jobless claims for the week ending May 27 decreased 37,000 to 1.757 million. Initial claims, which are a leading indicator, hit their highest level since November 2021.
  • The key takeaway from the report is the bump seen in initial claims as it connotes some softening in the labor market that the Fed will like to see, although claims levels continue to run well below levels seen in past recessions (i.e., north of 375,000), which is a point that market participants should be relatively pleased to know.
• Wholesale inventories fell 0.1% in April (Briefing.com consensus -0.2%) from a revised 0.2% decline in the prior reading (from 0.0%).
• The weekly EIA Natural Gas Inventories showed a build of 104 bcf versus a build of 96 bcf last week.

The stock market had a mixed showing to close out a constructive week overall for the bulls. The S&P 500 climbed past 4,300 for the first time since August after yesterday's closing level (4,293.93) marked a 20% advance off the October closing low, which meets the technical definition of entering a new bull market. The index couldn't maintain that position on a closing basis, however, ultimately settling the session just a whisker shy of 4,300.

Initially, many stocks were participating in index gains. The Invesco S&P 500 Equal Weight ETF (RSP) was up 0.4% at its high for the day, but closed with a 0.1% loss after many stocks pulled back.

The market reverted back to 2023 form shortly after the open, which is to say that mega cap stocks supported the major indices while the broader market was relatively weak. The Vanguard Mega Cap Growth ETF (MGK), which had been up as much as 1.2%, closed with a 0.4% gain.

The shift in market breadth as the session progressed also reflected underlying weakness. Shortly after the open, advancers and decliners at the NYSE and Nasdaq were nearly even. By the close, decliners led advancers by a 5-to-3 margin at the NYSE and a nearly 2-to-1 margin at the Nasdaq.

There was no U.S. economic data of note on Friday.