Today's brief

Midday Summary: Growth concerns in the mix

Today's session has included some misdirection in that the major indices started on an upbeat note, yet the trading action beneath the surface, and across the capital markets, has not validated a positive mindset about the growth outlook.

Nonetheless, a move into the mega-cap stocks proved to be a "market mover" early that belied an otherwise concerned mindset.

The mega-cap stocks continue to exhibit relative strength, but coming out of the New York lunch hour, their earlier strength has faded along with the opening gains for the broader market, which is now mixed on the heels of Fed Chair Powell appearing before the House Financial Services Committee for day two of his Semiannual Monetary Policy Report to Congress.

At one point, the Vanguard Mega-Cap Growth ETF (MGK) was up as much as 1.6%, but it is now up 0.4%.

The market's growth concerns have been unveiled in the following way:

  • Today's weakest sectors are the cyclical energy (-4.7%), materials (-2.2%), financial (-1.8%), and industrials (-1.5%) sectors.
  • There is broad-based weakness in the commodities markets, which includes declines for WTI crude futures ($104.26/bbl, -1.93, -1.8%), copper futures ($3.74/lb, -0.20, -5.2%), and lumber futures ($600.50/bft, -11.10, -1.8%).
  • The 2-yr note yield, which hit 3.43% a little more than a week ago, is back to 2.95%. The 10-yr note yield, which flirted with 3.50% a little more than a week ago, is back to 3.03%.
  • The mega-cap stocks, which are seen as having better earnings dependability in a slowdown, are outperforming. The Vanguard Mega-Cap Growth ETF (MGK) is up 0.4% while the Invesco S&P 500 Equal Weight ETF (RSP) is down 0.3%.
  • The countercyclical utilities (+1.6%), consumer staples (+1.2%), and health care (+1.2%) sectors are in demand and have led this week's gains.
  • Semiconductors, which carry leading indicator status, are weak. The Philadelphia Semiconductor Index is down 1.8%.
  • Travel-related stocks are among today's more notable laggards.

The S&P 500 ran into resistance with a retest of the 3800 level mid-morning. It has been pulling back since then as market breadth has been deteriorating. The advance-decline line, which favored advancers earlier by a 2-to-1 margin at the NYSE and Nasdaq, now shows advancers with only a slight lead over decliners at the NYSE and a narrower 3-to-2 margin at the Nasdaq.

Reviewing today's economic data:

  • Initial claims for the week ending June 18 decreased by 2,000 to 229,000 (Briefing.com consensus 230,000) while continuing claims for the week ending June 11 increased by 5,000 to 1.315 million.
    • The key takeaway from the report is that it is another reminder that the improvement in initial jobless claims has stalled. Nonetheless, they remain at low enough levels that support expectations for another solid increase in nonfarm payrolls in June. This report covers the week in which the survey for the June employment report was conducted.
  • The preliminary June IHS Markit Manufacturing PMI reading was 52.4 compared to 57.0 for May. The preliminary June IHS Markit Services PMI reading was 51.6 compared to 53.4 for May.
  • The Q1 Current Account Balance widened to -$291.4 billion (Briefing.com consensus -$279.0 billion) from a downwardly revised -$224.8 billion (from -$217.9 billion) in Q1.