The S&P 500 declined 0.4% on Thursday, although it was down as much as 1.6% intraday amid concerns surrounding the macro environment. The Dow Jones Industrial Average (-0.3%) and Russell 2000 (-0.2%) also fell modestly while the Nasdaq Composite (-1.0%) underperformed.
Yesterday’s optimism was pressured by a breakdown in ceasefire talks between Russia and Ukraine, CPI data for February that was as hot as feared/expected, a 10-yr yield that reached 2.01% (+6 bps today), and a short rebound in oil prices after the UAE clarified that it wasn’t going to unilaterally raise oil production.
Fortunately, oil prices went from over $114.00/bbl intraday to below $107.00/bbl ($106.29, -2.59, -2.4%) by the settlement. That seemed to help lighten the mood for the stock market, even as interest rates held firm.
The S&P 500 sectors closed mixed with six sectors closing lower and five sectors closing higher. The heavily-weighted information technology sector (-1.8%) fell about 2%, while the energy (+3.1%) and consumer discretionary (+1.2%) sectors rose 3% and 1%, respectively.
Interestingly, energy stocks bounced back from yesterday’s pullback despite the fade in oil prices, which played a constructive role for the consumer discretionary stocks.
The consumer discretionary sector, to be fair, really owed a large part of its outperformance to Amazon.com ( AMZN 2936.35, +150.77, +5.4%), which jumped 5% after announcing a 20-for-1 stock split and a $10 billion share repurchase authorization.
The other mega-caps were not as fortunate, evident by the 0.8% decline in the Vanguard Mega Cap Growth ETF ( MGK 215.26, -1.71, -0.8%). The Invesco S&P 500 Equal Weight ETF ( RSP 151.11, -0.29, -0.2%), for comparison, decreased by 0.2%.
Specifying the consumer inflation data, total CPI rose 0.8% m/m in February while core CPI, which excludes food and energy, rose 0.5% m/m. Both were in-line with expectations. The year-over-year rates increased to 7.9% and 6.4%, respectively.
The report tugged on inflationary fears and supported rate-hike expectations. The fed-funds sensitive 2-yr yield rose five basis points to 1.72%. The U.S. Dollar Index rose 0.6% to 98.57 amid relative weakness in the euro, which fell 0.9% against the dollar to 1.098.
Reviewing Thursday’s economic data:
- Total CPI increased 0.8% month-over-month in February, as expected, while core CPI, which excludes food and energy, increased 0.5%, also as expected. On a year-over-year basis, total CPI was up 7.9%, versus 7.5% in January, and core CPI was up 6.4%, versus 6.0% in January.
- The key takeaway from the report is that inflation is still terribly high and going higher given the worsening commodity price trends seen this month and increased rent costs. Accordingly, this report should bring nothing but cold comfort.
- The weekly initial claims report showed an 11,000 increase in jobless claims to 227,000 (Briefing.com consensus 220,000) for the week ending March 5. Continuing claims for the week ending February 26 increased by 25,000 to 1.494 million.
- The key takeaway from the report is that the level of jobless claims is still consistent with a tight labor market.
- The Treasury Budget showed a $216.6 bln deficit in February versus a $310.9 bln deficit in the same period a year ago. The budget data is not seasonally adjusted, so the February deficit cannot be compared to the January surplus of $118.7 bln.
- The budget deficit over the last 12 months is $2.20 trln versus a deficit of $2.30 trln in January.
Looking ahead, investors will receive the preliminary University of Michigan Index of Consumer Sentiment for March on Friday.
- Dow Jones Industrial Average -8.7% YTD
- Russell 2000 -10.4% YTD
- S&P 500 -10.6% YTD
- Nasdaq Composite -16.1% YTD
Overseas:
- Europe: DAX -2.9%, FTSE -1.3%, CAC -2.8%
- Asia: Nikkei +3.9%, Hang Seng +1.3%, Shanghai +1.2%
Commodities:
- Crude Oil -2.59 @ 106.29
- Nat Gas +0.12 @ 4.67
- Gold +12.30 @ 1999.50
- Silver +0.30 @ 26.22
- Copper +0.08 @ 4.64