Market Update - July 22

It was a grind on Monday for the stock market, but that doesn't mean it was a bad session. On the contrary, it was a good day for the stock market, which saw very little challenge from sellers outside of some individual stocks and the S&P 500 hit a new 52-week high.

There weren't any meaningful news drivers to account for the buying interest. Rather, it was more of the same buying on weakness and forging ahead on the hopeful notion that the U.S. economy will avoid a hard landing, that the Fed is close to done raising interest rates, and that earnings growth will return in the second half of the year.

AT&T (T) and Verizon (VZ) each took a hit amid concerns about potential liabilities and financial risk related to the telecom industry's historical use of lead sheathed cables.

The financial sector was a pocket of relative strength in front of earnings reports from Bank of America (BAC), Morgan Stanley (MS), and Charles Schwab (SCHW) before Tuesday's open.

Reviewing Monday's economic data:

• The July Empire State Manufacturing Survey checked in at a better-than-expected 1.1 (Briefing.com consensus -8.8), although that was a deceleration from the prior month's reading of 6.6

The stock market started the session more mixed at the index level, but closed with solid gains. Initially, weak mega caps held back the major indices while the underlying market exhibited some decent strength. The market turned higher, though, after several mega caps recovered from early losses. The major indices all closed near their highs of the day, led by the Russell 2000 (+1.3%).

Microsoft (MSFT), down 1.0% at its low of the day, charged higher after announcing the introduction of Bing Chat Enterprise, Microsoft 365 Copilot pricing, and an expanded AI partnership with Meta Platforms (META)

As money flowed into Microsoft, other parts of the market softened up somewhat. The Invesco S&P 500 Equal Weight ETF (RSP), which had been up 0.8% at its high of the day, closed with a 0.6% gain.

Gains for the broader market were driven by the idea that the U.S. economy will avoid a hard landing. The retails sales report for June helped corroborate that idea, but it didn't appear that way at first with total sales coming in weaker than expected. 

Strong gains in Bank of America (BAC), Charles Schwab (SCHW), and Morgan Stanley (MS) following their earnings reports, which seemed to be missing in pre-open trading, were another source of support for the broader market.

Reviewing Tuesday's economic data:

• Total retail sales in June increased a weaker-than-expected 0.2% month-over-month (Briefing.com consensus 0.5%), yet May sales were revised up to 0.5% (from 0.3%). Excluding autos, June retail sales also increased a weaker-than-expected 0.2% (Briefing.com consensus 0.3%) following an upwardly revised 0.3% increase (from 0.1%) in May. After accounting for the upward revisions to May sales, the June results were roughly consistent with expectations.
  • The key takeaway from the report is that control group sales, which are used in the computation for personal spending in the GDP report, were up a solid 0.6%, leaving them far afield of an economy in recessionary distress.
• Total industrial production declined 0.5% month-over-month in June (Briefing.com consensus 0.0%) following a downwardly revised 0.5% decline (from -0.2%) in May. The capacity utilization rate slipped to 78.9% (Briefing.com consensus 79.5%) from a downwardly revised 79.4% (from 79.6%) in May.
  • The key takeaway from the report is that most major market groups posted declines in June, reflecting the softening demand that has plagued the manufacturing side of the economy more so than the services side of the economy.
• Business inventories rose 0.2% in May (Briefing.com consensus 0.2%) following a revised 0.1% increase in April (from 0.2%).
• The NAHB Housing Market Index rose to 56.0 in July (Briefing.com consensus 56.0%) from 55.0 in June.

The major indices saw some choppy action action, but finished with modest gains and showed a continued aversion to negative territory. The Nasdaq oscillated around its flat line, underperforming its peers due to relative weakness from some mega cap names and amid some hesitation in front of earnings reports after the close from Tesla (TSLA) and Netflix (NLFX).

By and large, market participants continued to trade off the notion that the economy will avoid a hard landing and that earnings growth will return in the second half of the year. The lack of concerted selling interest, despite calls for a pullback after the big run to start the year, has continued to act as an added support, sparking short covering activity and drawing in money from the sidelines due to a fear of missing out on further gains.

There was a slate of corporate news that revolved around earnings results; however, Apple (AAPL) garnered some added attention following a Bloomberg report that the company is internally testing AI tools.

On the earnings front, Goldman Sachs (GS) outperformed despite missing on Q2 EPS estimates, as did J.B. Hunt (JBHT), which logged a sizable gain despite mentioning a freight recession but some improvement in customer destocking.

Northern Trust (NTRS), M&T Bank (MTB), Western Alliance (WAL), and U.S. Bancorp (USB) were notable winners following their earnings reports.

Reviewing Wednesday's economic data:

• The weekly MBA Mortgage Applications Index rose 1.1% after a 0.9% increase last week with refinancing applications up 7.0% and purchase applications down 1.0%.
• Total housing starts declined 8.0% month-over-month to a seasonally adjusted annual rate of 1.434 million (Briefing.com consensus 1.475 million), with single-family starts down in all regions except the West (+4.6%), following a downwardly revised 1.559 million (from 1.631 million) for May. Building permits decreased 3.7% month-over-month to a seasonally adjusted annual rate of 1.440 million (Briefing.com consensus 1.472 million), with permits for single-family units flat to positive in all regions, following an upwardly revised 1.496 million (from 1.491 million) for May.
  • The key takeaway from the report is that higher financing costs are creating headwinds for builders and preventing activity from being stronger in a supply-constrained housing market.
• The weekly EIA crude oil inventories showed a draw of 708,000 barrels following last week's build of 5.95 million barrels.

Stocks traded on a mixed note on Thursday. Concerns about the market being overbought and due for some consolidation precipitated some added selling pressure in Tesla (TSLA) and Netflix (NLFX) following their better than expected Q2 earnings results. Their weakness, and Taiwan Semiconductor Manufacturing Co. (TSM) cautioning about a continued inventory adjustment, fueled the underperformance of mega caps and semiconductor stocks, which have been star performers this year. That weakness weighed heavily on the S&P 500 and Nasdaq.

Even with Thursday's losses, Tesla, Netflix, and Taiwan Semiconductor Manufacturing Co. are still up 114.2%, 48.5%, and 31.4%, respectively, for the year.

Notably, the broader market showed some remarkable resilience despite the weakness in the mega cap space. The Invesco S&P 500 Equal Weight ETF (RSP) declined only 0.1% versus a 0.7% decline for the market-cap weighted S&P 500. The Dow Jones Industrial Average, meanwhile, logged its ninth consecutive winning session, boosted by gains in Johnson & Johnson (JNJ), IBM (IBM), and Travelers (TRV) following their earnings reports.

Weekly initial jobless claims came in at the lowest level (228,000) since Mid-May, which was good news regarding the state of the labor market and provided added support for investor sentiment.

Reviewing Thursday's economic data:

• The Philadelphia Fed Index for July checked in at -13.5 (Briefing.com consensus -9.0) versus the prior month's reading of -13.7
• Initial claims for the week ending July 15 decreased by 9,000 to 228,000 (Briefing.com consensus 240,000). That is the lowest level of initial claims since mid-May when the S&P 500 was around 4,100 or 11.4% lower than where it is today. Continuing jobless claims for the week ending July 8 increased 33,000 to 1.754 million.
  • The key takeaway from this report is that it connotes continued strength in the labor market and presumably not much fear about an imminent and material drop-off in end demand knowing that initial jobless claims are a leading indicator.
• Existing home sales decreased 3.3% month-over-month in June to a seasonally adjusted annual rate of 4.16 million (Briefing.com consensus 4.25 million) from an unrevised 4.30 million in May. Sales were down 18.9% from the same period a year ago.
  • The key takeaway from the report is that the inventory of existing homes for sale remains tight, which is due in part to the strength of the labor market, the ability to work remotely, and the jump in mortgage rates that is deterring existing home owners' interest in moving. In short, existing home sales are being crimped more so by the limited supply than by weak demand.
• Weekly EIA natural gas inventories showed a build of 41 bcf versus last week's build of 49 bcf.
• June Leading Indicators -0.7% (Briefing.com consensus -0.6%); Prior was revised to -0.6% from -0.7%

The stock market closed out another mixed session. There wasn't any concerted selling interest, but there wasn't a lot of buying interest either as market participants looked ahead to a busy earnings reporting schedule next week that will feature results from Alphabet (GOOG) and Microsoft (MSFT) on Tuesday and Meta Platforms (META) on Wednesday.

Also, there will be policy meetings for the Fed, the ECB, and the Bank of Japan. The economic calendar, in turn, will feature a number of key releases highlighted by the Adv. Q2 GDP report and the June Personal Income and Spending Report that will include the Fed's preferred inflation gauge in the form of the core-PCE Price Index.

Still, the broader market held up well in spite of some relative weakness in the mega cap space. The Vanguard Mega Cap Growth ETF (MGK) fell 0.2% while the Invesco S&P 500 Equal Weight ETF (RSP) eked out a 0.1% gain. The market-cap weighted S&P 500 closed flat. The Dow Jones Industrial Average finished just above the unchanged mark, which was good enough for its tenth consecutive gain.

Friday's price action featured a broadening out of buying interest that led to non-tech and value stocks outperforming. The Russell 3000 Value Index rose 0.2% while the Russell 3000 Growth Index fell 0.2%.

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