From Briefing.com: 4:15 pm : The major averages ended the Tuesday session on a mixed note after the S&P 500 (-0.1%) tested and failed to clear resistance at the 2102/2104 price level. Today's trade also featured positive economic data, a reversal in crude oil, strengthening in the dollar, and the underperformance of the financial (-0.3%) and consumer discretionary (-0.1%) sectors. The Dow Jones Industrial Average (-0.4%) finished behind the S&P 500 (-0.1%) and the Nasdaq Composite (+0.3%).
Today's session began on a choppy note as the major averages consolidated after last week's leg higher. Equities abandoned a slim lead when the benchmark index tested and was rejected by the 2102/2104 price level. As a result, indices ebbed lower through the afternoon as the heavyweight financial (-0.3%) and consumer discretionary (-0.1%) spaces lagged the broader market.
The benchmark index found support near the 2090/2092 price level and trimmed its loss in the final half hour of trade. Six sectors finished the day in the red with energy (-0.6%), materials (-0.5%), consumer staples (-0.5%) leading to the downside. Conversely, safe haven utilities (+0.6%) and telecom services (+0.5%) led health care (+0.1%) and technology (+0.1%) on the positive side of the leaderboard.
The energy space (-0.6%) abandoned a modest gain as a reversal in oil weighed on the broader sector. The energy component began its day on a higher note, testing the $50.00/bbl price level, but was unable to maintain this level. WTI crude ended its pit session lower by 0.5% at $49.10/bbl. Reports cited commentary from a UAE oil minister as a contributing factor for the reversal. On a side note, OPEC will be meeting June 2 in Vienna, Austria for its biannual meeting.
The financial sector (-0.3%) experienced broad-based weakness as the group trimmed its monthly gain. The broader sector gained 1.8% in May compared to a 1.5% uptick in the benchmark index. In the group, Bank of America (BAC 14.79, -0.09) declined by 0.6% after gaining 2.5% last week. The broader sector trailed only health care (+0.1%; month-to-date +2.0%) and technology (+0.1%; month-to-date +5.3%) on a monthly basis.
In the consumer discretionary space (-0.1%), Royal Caribbean (RCL 77.39, -0.38) and Carnival (CCL 47.74, -0.86) extended their recent losing streaks as they weighed on the leisure sub-group. Elsewhere, Dow components Home Depot (HD 132.12, -1.13) and Disney (DIS 99.22, -1.07) fell 0.9% and 1.1%, respectively.
Large cap component Apple (AAPL 99.82, -0.53) weighed on the technology space (+0.1%) as the company pulled back from a gain of 5.4% last week. Adding to the name's difficult session was a report from Nikkei, which stated that the new iPhone will only feature small changes. Separately, Cognizant Technology (CTSH 61.44, -1.02) underperformed and trimmed its May advance to 5.3%.
The U.S. Dollar Index (95.86, +0.34) ended off its best level of the day as the euro lost ground to the greenback. The euro/dollar pair ended lower by 0.1% (1.1129) while the dollar lost 0.4% against the yen 110.72.
Treasuries finished flat as the yield on the 10-yr note ended unchanged at 1.85%. The yield on the benchmark note rose two basis point from its April settlement at 1.83%.
Today's volume was above the recent average as more than 1.439 billion shares changed hands on the NYSE floor.
Today's economic data included Personal Income and Personal Spending for April, April core PCE Prices, Case-Shiller 20-city Index for May, May Chicago PMI, and May Consumer Confidence:
The Personal Income and Spending report brought some more good news for the growth pickup story. It showed a 0.4% increase in personal income (Briefing.com consensus +0.4%) and a sizable 1.0% increase in personal consumption expenditures (PCE) (Briefing.com consensus +0.7%). That was the largest month-over-month increase in spending since August 2009.
In brief, the Personal Income and Spending report for April is certainly on the Fed's rate-hike side.
The personal savings rate as a percentage of disposable income fell to 5.4% from 5.9%.
With a 0.8% increase in aggregate earnings seen in the Employment Situation report for April, it appears that consumer spending out of savings helped drive the strong increase in personal spending in April.
The PCE Price Index was up 0.3% while the core PCE Price index, which excludes food and energy, was up 0.2%.
On a year-over-year basis, the PCE Price Index is up 1.1%, compared to 0.8% in March, while the core PCE Price Index is up 1.6%, the same as in March.
Real PCE increased 0.6% after being unchanged in March. That is definitely a positive input as it relates to second quarter GDP forecasts and should be seen favorably by the Federal Reserve, along with the progress of the PCE Price Index toward the Federal Reserve's 2% inflation target.
The Case-Shiller 20-city Home Price Index for March rose to 5.4%, which was above the Briefing.com consensus of 5.1%.
This followed the previous month's unrevised reading of 5.4%.
The bulk of the economic data seen of late has been quite supportive of a pickup in growth in the second quarter. The Chicago PMI report for May was not. It fell to 49.3 (Briefing.com consensus 50.9) from 50.4 in April.
The May reading is the lowest since February and below 50.0, which is the dividing line between expansion and contraction for manufacturing activity in the Chicago Fed region.
This is the sixth time it has been in contraction over the past six months.
The main source of the disappointment was a 6.6-point drop in the Production Index and a downturn in the New Orders Index, both of which fell below 50.0.
Four of the five components that make up the business barometer were below 50.0. Only supplier deliveries was above 50.0.
Inventories dropped 11.7 points to 37.9, which is the lowest reading for that index since November 2009.
While that could possibly suggest a need to replenish inventories, the survey exposed some doubt about that possibility as a special question revealed 68.7% of respondents did not plan to increase business investment over the next six months.
In other words, there is some heightened uncertainty about the outlook that could leave manufacturers reluctant to build inventories since there doesn't appear to be much faith right now in the demand outlook.
The Conference Board's Consumer Confidence report for May fell to 92.6 from 94.7 in April (Briefing.com consensus 96.2).
The downturn was fed by a drop in both the Present Situation Index, which fell from 117.1 to 112.9, and the Expectations Index, which declined from 79.7 to 79.0.
Clearly, the biggest driver of things was consumers' assessment of current conditions.
The downgraded view flowed from an uptick in the percentage of respondents saying jobs are "hard to get" (from 22.8% to 24.4%) and saying business conditions are "bad" (from 18.2% to 21.6%).
Consumers' outlook for the labor market was less favorable as those anticipating fewer jobs increased from 16.7% to 18.1%. The proportion expecting a reduction in income, though, held steady at 12.4%.
Tomorrow's economic data will include the MBA Mortgage Index and the May ADP Employment Change Report (Briefing.com consensus 180k), which will be released at 7:00 ET and 8:15 ET, respectively. Separately, the ISM Service Index for May (Briefing.com consensus 50.4) and Construction Spending for April (Briefing.com consensus 0.5%) will cross the wires at 10:00 ET. Finally, the day's data will be capped off with the Fed's Beige Book for June at 14:00 ET while May Auto and Truck sales will be reported throughout the day.
S&P 500 +2.6% YTD
Dow Jones +2.1% YTD
Russell 2000 +1.7% YTD
Nasdaq Composite -1.2% YTD
Equity indices opened their day on a modestly higher note as investors weighed the potential rate hike implications of the Personal Income and Spending report for April. Participants received in-line readings of April Personal Income (+0.4%) and Core PCE prices (+0.2%) while Personal Spending for April (+1.0%) surprised to the upside. The datapoints are especially significant following last Friday's comments from Fed Chair Yellen, which indicated that a rate hike could be appropriate in the coming months.
The market came back from a long weekend to a mixed Tuesday. The final trading session of May ended with the Nasdaq Composite the lone out-performer, adding 14.55 points (+0.29%) to 4948.06. The Dow Jones Industrial Average was the worst performer today, losing 86.09 points (-0.48%) to 17787.13 as July Crude Oil Futures fell -0.5%. Finishing between the two others, the S&P 500 was lower by 2.11 points (-0.10%) to 2096.
The abbreviated week began with modest gains in the Technology (XLK 44.21, +0.05 +0.11%) sector as the final hour of trading brought action back from the red. Component Apple (AAPL 99.86, -0.49 -0.49%) held a modestly lower bid the entire day, and finished the session with some average losses, snapping the stocks recent winning streak; AAPL was the subject of a Nikkei report this morning that detailed a possible three-year future model cycle, and noted the dearth of changes in the upcoming fall iteration of the flagship iPhone. Other sectors as measured by the S&P closed trading XLU +0.66%, IYZ +0.64%, XLV +0.24%, XLI -0.02%, XLY -0.10%, XLF -0.25%, XLE -0.39%, XLB -0.51%, XLP -0.64% as Utilities led the advance and Consumer Staples were among the laggards.
In the S&P 500 Information Technology (733.54, +0.89 +0.12%) sector, action was slightly higher despite afternoon weakness. Component Micron (MU 12.72, +0.41 +3.33%) was among the best performers in the sector today as shares were upgraded this morning to an Outperform rating from a Neutral at Robert W. Baird. Other names in the space which ended with modest gains included STX +4.16%, WDC +3.45%, ADS +3.32%, GLW +1.85%, NVDA +1.79%, JNPR +1.65%, HPQ +1.59%.
Other notable news items among sector components:
IBM (IBM 153.74, +0.90 +0.59%) announced Weta Workshop upgraded and expanded its implementation of high-speed transfer software from Aspera, an IBM company, to meet growing demand for high-volume transfers of large 2D and 3D design and video files.
Qualcomm (QCOM 54.92, -0.35 -0.63%) announced at COMPUTEX 2016 that its subsidiary, Qualcomm Technologies, Inc., introduced end-to-end GigaDSL products that enable broadband operators to seamlessly transition deployments from VDSL to Gigabit access technologies.
Motorola Solutions (MSI 69.27, -0.23 -0.33%) introduced WAVE 7000 to a marketplace that requires high-performance PTT across broadband and land mobile radio networks to keep teams more connected than ever. The solution is now available globally.
Apple (AAPL) was the subject of a Nikkei report which suggested the company would extend the iPhone product cycle to three years. The article also noted that changes to the new iPhone which is set to be released this fall will be minor.
Elsewhere in the Tech space:
Verizon (VZ 50.90, +0.29 +0.57%) confirmed it reached an 'agreement in principal' with the company's wireline employees and a small number of wireless employees in the Northeast.
Marketo (MKTO 35.23, +3.03 +9.41%) to be acquired by Vista Equity Partners for $35.25 per share in cash, or about $1.79 billion.
Dangdang (DANG 6.27, +0.24 +3.98%) to be acquired by its parent company in a going-private transaction for cash consideration of $6.70 per ADR in a transaction valued at about $556 million on a fully-diluted basis.
SciQuest (SQI 17.64, +4.37 +32.93%) to be acquired by Accel-KKR for $17.75 per share in an all-cash transaction valued at about $509 million.
Parkervision (PRKR 3.32, +0.01 +0.30%) announced that Brickell Key Investments exercised its right to provide an additional $2 million in funding under the Feb. 26 agreement.
Electro Rent (ELRC 13.10, +2.55 +24.17%) to be acquired by Platinum Equity for $13.12 per share in all cash transaction of about $323.4 million.
KVH Industries (KVHI 8.47, -0.01 -0.12%) announced Peter Rendall will leaving to pursue other opportunities and that John McCarthy has been appointed interim CFO effective immediately.
PC Connection (PCCC 22.99, -0.02 -0.09%) acquired Softmart, a global supplier of information technology and service solutions. Financial terms of the deal were not disclosed, but the company expected it to be accretive.
Zayo Group Holdings (ZAYO 27.78, -0.22 -0.79%) announced that co-Chief Operating Officer Chris Morley is being named Chief Operating Officer of Zayo Group, while co-COO and co-founder Matt Erickson will depart Zayo Group in late July.
Broadsoft (BSFT 43.60, -0.24 -0.55%) acquired Intellinote. The company expects the acquisition to be dilutive by about $0.04 to its non-GAAP earnings for 2016.
Earnings ahead this week:
Tonight - TIVO, WDAY; Wed. morning - DAKT, SCWX; Wed. afternoon - BOX, GWRE, SMTC, VRNT; Thur. morning - CIEN, YGE; Thur. afternoon - AMBA, BV, AVGO, CMTL, MRVL
Analyst actions:
MU was upgraded to Outperform from Neutral at Robert W. Baird,
LITE was upgraded to Outperform from Mkt Perform at Raymond James,
PHI was upgraded to Neutral from Underperform at Credit Suisse;
WDAY was downgraded to Hold from Buy at Cross Research,
FEIC was downgraded to Hold from Buy at The Benchmark Company,
MKTO was downgraded to Sector Perform from Outperform at RBC Capital Mkts,
KVHI was downgraded to Neutral from Buy at Chardan Capital Markets;
ZG was initiated with a Neutral at Mizuho
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