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S&P 500, Dow close at record highs amid lingering rate-cut optimism
11-Jul-19 16:20 ET
Dow +227.88 at 27088.17, Nasdaq -6.49 at 8196.04, S&P +6.84 at 2999.91

https://www.briefing.com/investor/markets/stock-market-update/2019/7/11/s-and-p-500-dow-close-at-record-highs-amid-lingering-ratecut-optimism.htm

[BRIEFING.COM] The S&P 500 (+0.2%) and Dow Jones Industrial Average (+0.9%) closed at record highs on Thursday amid lingering rate-cut optimism. The Dow also hit the 27,000 level for the first time, but the Nasdaq Composite (-0.1%) and Russell 2000 (-0.5%) were unable to keep pace.

Despite the record highs, Thursday's session was relatively tight ranged. The S&P 500 quickly challenged its intraday high (3003) from yesterday, which is also its all-time high, but was unable to surpass it as the market appeared tired after a big stretch of gains.

Thursday's leaders included most of the S&P 500 cyclical sectors. The industrials (+0.7%), financials (+0.6%), and materials (+0.4%) sectors finished atop the standings. The real estate sector (-1.2%) was the day's outright laggard amid higher U.S. Treasury yields.

The 2-yr yield increased three basis points to 1.85%, and the 10-yr yield increased six basis points to 2.12%. The U.S. Dollar Index declined 0.1% to 97.06. WTI crude declined 0.4% to $60.26/bbl.

Fed Chair Powell wrapped up his semiannual testimony on Capitol Hill on Thursday, which didn't differ too much from yesterday's session. Mr. Powell's dovish tone assured the market's thinking that the Fed will cut the fed funds rate by at least 25 basis points at the July 30-31 FOMC meeting.

Higher-than-expected consumer inflation data, however, did temper some expectations for a 50-basis points rate cut. The core reading in the Consumer Price Index for June rose 0.3% (Briefing.com consensus 0.2%), raising the yr/yr rate to 2.1% versus 2.0% in May. According to the fed funds futures market, the implied likelihood for a 50-basis points cut declined to 20.4% from 26.6% yesterday.

Separately, the White House abandoned its proposal to eliminate rebates from government drug plans, which benefited shares of health insurers and companies with exposure to pharmacy benefit management.

UnitedHealth (UNH 261.16, +13.68, +5.5%), CVS Health (CVS 57.97, +2.59, +4.7%), and Cigna (CI 175.34, +14.83, +9.2%) rose on the news, but pharmaceutical companies like Merck (MRK 81.00, -3.82, -4.5%) and Pfizer (PFE 42.98, -1.08, -2.5%) underperformed. The S&P 500 health care sector was unchanged.

In earnings news, Fastenal (FAST 30.36, -0.89, -2.9%) disappointed investors by missing profit estimates. Delta Air Lines (DAL 60.16, +0.69, +1.2%), on the other hand, reported better-than-expected results and raised its full-year guidance.

Reviewing Thursday's economic data, which included the Consumer Price Index for June, the weekly MBA Mortgage Applications Index, and the Treasury Budget for June:

Total CPI increased 0.1% m/m in June (Briefing.com consensus 0.0%) while core CPI, which excludes food and energy, rose 0.3% (Briefing.com consensus +0.2%). On a yr/yr basis, total CPI was up 1.6%, versus 1.8% in May, while core CPI was up 2.1%, versus 2.0% in May.
The key takeaway from the report was that the yr/yr uptick in core CPI should seemingly diminish the prospect of a 50-basis points rate cut at the July meeting.
Initial claims for the week ending July 6 decreased by 13,000 to 209,000 (Briefing.com consensus 222,000). Continuing claims for the week ending June 29 jumped by 27,000 to 1.723 million.
The key takeaway from the report is that it continues to reflect a tight labor market where employers are reluctant to let go of employees.
The Treasury Budget for June showed a deficit of $8.5 billion versus a deficit of $74.8 billion for the same period one year ago. The Treasury Budget is not seasonally adjusted, so the June deficit cannot be compared to the $207.7 billion deficit for May.
The fiscal year-to-date deficit is $747.1 billion versus a deficit of $607.1 billion for the same period ago. The budget deficit over the last 12 months is $919 billion, versus $985.4 billion for the 12 months ending in May.

Looking ahead, investors will receive the Producer Price Index for June on Friday.

Nasdaq Composite +23.5% YTD
S&P 500 +19.7% YTD
Dow Jones Industrial Average +16.1% YTD
Russell 2000 +15.5% YTD