Sector Investing

[ReturntoSender]

Reining in the Bulls
14-Sep-17 16:25 ET
Dow +45.30 at 22204.78, Nasdaq -31.10 at 6429.06, S&P -2.75 at 2497.07

https://www.briefing.com/investor/markets/stock-market-update/2017/9/14/reining-in-the-bulls.htm

[BRIEFING.COM] Investors reined in the stock market on Thursday following three straight days of gains, which culminated in new record highs for all three major U.S. indices in the prior session. The S&P 500 and the Nasdaq dropped 0.1% and 0.5%, respectively, but the price-weighted Dow (+0.2%) leaned on some of its most influential components to finish at a new all-time high for the third session in a row.

While the market's current record-high level is in itself a reason for investors to take some money off the table, Thursday's downtick could also be attributed to increased rate-hike expectations following a hotter-than-expected CPI reading (+0.4% actual vs +0.3% Briefing.com consensus) and continued concerns surrounding North Korea's insistent prodding.

On a year-over-year basis, Thursday's CPI reading for the month of August showed an increase of 1.9%, which is just a tick below the Fed's target of 2.0%. Accordingly, the fed funds futures market adjusted the implied probability of a December rate hike to 52.9% from 41.3% on Wednesday, showing that the Fed's forecast of three rate hikes in 2017 is still believed to be feasible.

Meanwhile, North Korea appears ready to tighten geopolitical tensions once again after issuing some provocative remarks towards the U.S. and Japan. In addition, reports indicate that Pyongyang might be preparing yet another missile launch, its first since the August 29th launch over northern Japan.

However, U.S. Treasuries had a muted response to the aforementioned headlines, showing that investors were not all that concerned--at least for the time being. The yield on the benchmark 10-yr Treasury note ended Thursday unchanged at 2.20%, breaking its three-session winning streak. The 2-yr yield also finished flat, closing at 1.36%.

As for the equity market, six of the eleven sectors settled the day in positive territory. The lightly-weighted utilities space (+0.9%) showed particular strength, bouncing back from two straight days of losses, but the remaining advancers finished with gains of no more than 0.6%.

On the flip side, the consumer discretionary sector (-0.5%) settle at the bottom of the leaderboard amid broad weakness. The top-weighted technology group (-0.4%) also struggled, even though chipmakers put together a relatively positive performance, evidenced by the PHLX Semiconductor Index, which climbed 0.5%.

The influential financial sector also underperformed on Thursday, breaking its four-session winning streak. However, the group still holds a solid week-to-date gain of 2.8%, which places it in second place--right behind energy (+3.2% WTD)--on the weekly leaderboard.

In Europe, the Bank of England left its key policy rate at 0.25% and its asset purchase program at £435 billion, as expected, but noted that it could potentially raise rates more aggressively than the market expects if the economy keeps evolving as expected. The British pound spiked 1.4% against the U.S. dollar to 1.3399, hitting a 52-week high, following the BoE's comments.

Reviewing Thursday's economic data, which included the Consumer Price Index for August and the Weekly Initial Claims Report:

Total CPI increased 0.4% (Briefing.com consensus 0.3%) in August while core CPI, which excludes food and energy, rose 0.2% (Briefing.com consensus 0.2%). On a year-over-year basis, total CPI and core CPI are up 1.9% and 1.7%, respectively.
The key takeaway from the report is that the year-over-year bump in headline inflation toward the Fed's 2.0% target will prompt the market to consider more carefully the prospect of another rate hike before the end of the year.
The latest weekly initial jobless claims count totaled 284,000 while the Briefing.com consensus expected a reading of 310,000. Today's tally was below the unrevised prior week count of 298,000. As for continuing claims, they declined to 1.944 million from the revised count of 1.951 million (from 1.940 million).
The key takeaway from the report is that the underlying trend in initial claims remains solid and on point with a tight labor market, evidenced by the unadjusted claims figure, which fell by 36,500 to 214,121.

On Friday, investors will receive a slew of economic reports, including August Retail Sales (Briefing.com consensus 0.1%) at 8:30 ET, the September Empire State Manufacturing Index (Briefing.com consensus 20) also at 8:30 ET, Industrial Production (Briefing.com consensus 0.2%) and Capacity Utilization (Briefing.com consensus 76.8%) at 9:15 ET, the preliminary reading of the University of Michigan Consumer Sentiment Index for September (Briefing.com consensus 95.5) at 10:00 ET, and July Business Inventories (Briefing.com consensus 0.2%) also at 10:00 ET.

Nasdaq Composite +19.4% YTD
Dow Jones Industrial Average +12.4% YTD
S&P 500 +11.5% YTD
Russell 2000 +5.0% YTD