After Hours Report

The stock market had a very good week, although trading volume at the NYSE was on the light side all week. Not so for the Nasdaq, which saw heavier-than-average volume most days. Regardless of the volume totals, the bias was unmistakable. The stock market traded with a bullish bias.

Market participants continued to key on the notion that the economy will avoid a hard landing and that the Fed is close to being done raising interest rates. That thinking was corroborated by some key economic data this week that included the June CPI, PPI, and Import-Export Price Index, all of which showed inflation trending in a market-friendly direction, and another weekly initial claims report that was well below recession-like levels.

The CPI report was the headliner of the week. It was released before Wednesday's open and it showed a smaller-than-expected 0.2% increase in total CPI and a 0.2% increase in core CPI, which excludes food and energy. On a year-over-year basis, total CPI was up just 3.0%, versus 4.0% in May, which was the smallest increase since March 2021, and core CPI was up 4.8% versus 5.3% in May.

Treasury yields raced lower after the report and stock prices shot higher, following the trajectory Fundstrat's Tom Lee said before Monday's open that they would likely take if core CPI came in at 0.2% or less. Specifically, Mr. Lee said the S&P 500 could add as many as 100 points if the CPI report lived up to his expectations. When he made that call, the S&P 500 stood at 4,398.95. At its high on Friday, the S&P 500 hit 4,527.76.

The move from last Friday's closing level to this Friday's high was fueled by broad-based buying interest and a sizable drop in market rates. The 2-yr note yield declined 21 basis points this week to 4.73% while the 10-yr note yield dropped 23 basis points to 3.82%.

The Russell 2000 was up 4.6% for the week entering Friday's trade and settled the week up 3.6%. In turn, the Invesco S&P 500 Equal-Weight ETF (RSP) was up 3.0% for the week going into Friday and closed the week up 2.4%, matching the performance of the market-cap weighted S&P 500.

The broader market overcame a weak start for the mega cap stocks on Monday, which coincided with the Nasdaq's announcement after last Friday's close that there will be a special rebalancing of the Nasdaq 100 on July 24 to address the overconcentration in the index that has resulted from gains in the "Magnificent Seven." It will be the first special rebalancing of the Nasdaq 100 since May 2011.

The mega-cap stocks, however, overcame their slow start to the week and finished with a flourish, ultimately outperforming the S&P 500 as a group. To wit, the Vanguard Mega-Cap Growth ETF (MGK) increased 3.2% this week.

All 11 S&P 500 sectors recorded gains this week that ranged from 0.6% (energy) to 3.4% (communication services). Those gains were logged as the Q2 earnings reporting period got underway, featuring reports from Delta Air Lines (DAL), PepsiCo (PEP), JPMorgan Chase (JPM), Wells Fargo (WFC), Citigroup (C), and UnitedHealth (UNH), all of which exceeded consensus earnings expectations.

Speaking of expectations, the fed funds futures market was emboldened by the friendly CPI report on Wednesday and effectively put a lid on the prospect of any additional rate hikes after the July meeting. The fed funds futures market has priced in a 96.1% probability of a 25-basis points rate hike at the July meeting, yet the probability of a second rate hike at the September, November, or December meetings sits at just 15.4%, 29.0%, and 25.2%, respectively, according to the CME FedWatch Tool.

Several Fed officials, however, don't seem ready to close the door on a second rate hike, preferring to wait for more data to draw their conclusions. Be that as it may, the fed funds futures market and the stock market are  embracing the one-and-done view.

That perspective placed some added pressure on the dollar this week, as other central banks, namely the ECB and Bank of England, are seen as having further to go with their rate-hike campaigns. The U.S. Dollar Index dropped a hefty 2.4% this week to 99.96.

That move, and the soft-landing view, led to a pickup in many commodity prices this week, including oil (+1.9%) and copper (+3.8%), which rose despite some weak data out of China that, naturally, sparked calls for more policy stimulus.

• Nasdaq Composite: +3.3% for the week / +34.8% YTD
• S&P 500: +2.4% for the week / +17.3% YTD
• S&P Midcap 400: +2.7% for the week / +10.0% YTD
• Russell 2000: +3.6% for the week / +9.6% YTD
• Dow Jones Industrial Average: +2.3% for the week / +4.1% YTD

Below are truncated summaries of daily action:

Monday:

The stock market had a fairly strong showing. Index performance was more modest, however. The market-cap weighted S&P 500 rose only 0.2% while the Invesco S&P 500 Equal Weight ETF (RSP) rose 0.9%. Advancers led decliners by a roughly 2-to-1 margin at the NYSE and the Nasdaq.

Gains for the three major indices were smaller, largely because of the relative weakness seen among the mega cap stocks. The Vanguard Mega Cap Growth ETF (MGK) fell 0.2% with Apple (AAPL), Alphabet (GOOG), and Microsoft (MSFT) registering some of the largest declines from the space.

Those losses followed the news from Nasdaq that there will be a Special Rebalance of the Nasdaq 100 to reduce overconcentration in the index by redistributing weights, effective prior to the open on July 24. The new weightings will be determined on Friday, July 14.

Even with lagging mega caps, the broader market held up well. Small caps, banks, energy and semiconductor stocks all outperformed due to a more positive economic vibe in Monday's trade. The PHLX Semiconductor Index rose 2.1%, the Russell 2000 rose 1.6%, and the SPDR S&P Regional Banking ETF (KRE) rose 0.8%.

Reviewing Monday's economic data:

• May Wholesale Inventories 0.0% (Briefing.com consensus -0.1%); Prior was revised to -0.3% from -0.1%

Tuesday:

The market had a good showing on Tuesday. Things started out looking similar to Monday's tape with mega caps lagging while the broader market displayed some strength. By mid-morning, though, some mega caps had recovered from their losses, offering added support to the broader market.

The major indices ultimately closed near their best levels of the session. The market-cap weighted S&P 500 rose 0.7% while the Invesco S&P 500 Equal Weight ETF (RSP) closed with a 1.1% gain. The Vanguard Mega Cap Growth ETF (MGK), down 0.4% at its lows for the day, ended with a modest 0.4% gain.

Market internals reflected a relatively strong positive bias behind the price action, although trading volume was on the light side. Advancers led decliners by a better than 3-to-1 margin at the NYSE and by a nearly 2-to-1 margin at the Nasdaq.

The positive economic vibe in the market led small caps to outperform large caps and value stocks to outperform growth stocks. The Russell 3000 Value Index rose 1.1% versus a 0.5% gain in the Russell 3000 Growth Index.

Economic data on Tuesday was limited to the NFIB Small Business Optimism Survey for June, which rose to 91.0 from 89.4 in May.

Wednesday:

The stock market reacted favorably to the June Consumer Price Index (CPI), leading the S&P 500 and Nasdaq Composite to hit new 52-week highs at their best levels of the day. Ultimately, the major indices pulled back from their intraday highs, but still closed with decent gains.

Treasury yields took a sharp turn lower in response to the data, acting as another support factor for the stock market. The 2-yr note yield plunged 16 basis points to 4.73%. The 10-yr note yield dropped 12 basis points to 3.86%. Separately, Wednesday's $32 billion 10-yr note reopening met lukewarm demand. The U.S. Dollar Index, meanwhile, declined for the fifth consecutive day, falling 1.2% to 100.54.

Expectations of further rate hikes after the July FOMC meeting, which is expected to result in another a 25 basis points rate hike, declined in response to the CPI report. According to the CME FedWatch Tool, the probability of another 25 basis points rate hike is just 12.9% for the September meeting, 30.3% for the November meeting, and 24.2% for the December meeting.

Wednesday's rally was fairly broad and featured the outperformance of mega cap stocks, which had been lagging over the last few sessions.

Reviewing Wednesday's economic data:

• Total CPI for June was up 0.2% month-over-month (Briefing.com consensus 0.3%) with the index for shelter accounting for 70% of the increase. Core CPI, which excludes food and energy, was also up 0.2% month-over-month (Briefing.com consensus 0.3%), which was the smallest month-over-month change since August 2021.
• On a year-over-year basis, total CPI decelerated to 3.0% from 4.0% in May, marking its smallest increase since March 2021, while core CPI decelerated to 4.8% from 5.3% in May.
  • The key takeaway from the report is that there is clear evidence of encouraging disinflation for both total and core CPI that should temper worries about the Fed raising rates again beyond its July FOMC meeting.
• Weekly EIA Crude Oil Inventories showed a build of 5.95 million barrels after a draw of 1.51 million barrels last week.

Thursday:

It was another strong day for stocks. The S&P 500, which closed above 4,500, and the Nasdaq Composite ultimately settled near their highs of the day while the Dow Jones Industrial Average lagged. Mega caps gains boosted index performance, but many stocks participated in the rally.

The positive price action was driven by the belief that the economy can avoid a hard landing and that the Fed is close to being done raising rates. That belief was corroborated by Thursday's better than expected economic data on the heel's of Wednesday's cooler-than-expected CPI report.

Treasuries built on their post-CPI gains in reaction to Thursday morning's data. A late afternoon increase in buying interest in the Treasury market coincided with the S&P 500 and Nasdaq climbing to their highs of the day.

The positive sentiment was also helped by the better-than-expected Q2 results and guidance from Delta Air Lines (DAL) and PepsiCo (PEP), and news that Exxon Mobil (XOM) will be acquiring Denbury (DEN) in an all-stock transaction.

Bank stocks also assumed a leadership position in front of earnings reports from JPMorgan Chase (JPM), Wells Fargo (WFC), Citigroup (C), and others ahead of the open tomorrow. The SPDR S&P Regional Banking ETF (KRE) and the SPDR S&P Bank ETF (KBE) both gained 1.7%.

Reviewing Thursday's economic data:

• The Producer Price Index for final demand increased 0.1% month-over-month in June (Briefing.com consensus 0.2%) following a downwardly revised 0.4% decline (from -0.3%) in May. The index for final demand, less foods and energy ("core PPI"), also increased 0.1% month-over-month (Briefing.com consensus 0.2%) following a downwardly revised 0.1% increase (from 0.2%) in May.
• On a year-over-year basis, the Producer Price Index for final demand was up just 0.1% while the Producer Price Index for final demand, less foods and energy, was up 2.4%.
  • The key takeaway from the report is that wholesale inflation pressures are clearly moderating, which should be a boon for profit margins for companies able to retain pricing power.
• Initial jobless claims for the week ending July 8 decreased by 12,000 to 237,000 (Briefing.com consensus 247,000) while continuing jobless claims for the week ending July 1 increased by 11,000 to 1.729 million.
  • The key takeaway from the report is the understanding that initial jobless claims continue to run well below recession-like levels, reflecting a continued solid state for the labor market that is supportive of consumer spending growth and the soft landing view.
• The weekly EIA Natural Gas Inventories showed a build of 49 bcf versus a build of 72 bcf last week.

Friday:

There was good earnings news today from JPMorgan Chase (JPM 149.77, +0.90, +0.6%), Wells Fargo (WFC 43.56, -0.15, -0.3%), Citigroup (C 45.78, -1.90, -4.0%), and UnitedHealth (UNH 480.17, +32.42, +7.2%). There was good economic news today that included an increase in consumer sentiment to its highest level since September 2021 in July and some notable deflation in import prices and export prices on a year-over-year basis in June. There were some encouraging ratings actions for Microsoft (MSFT 345.24, +2.58, +0.8%), which was upgraded to Buy from Neutral at UBS, and for NVIDIA (NVDA 454.69, -5.08, -1.1%), which saw Truist raise its price target to $545 from $470.

What there wasn't today was a good market performance. By and large, the stock market languished under the weight of profit-taking expectations following a big run already this week. The Russell 2000, up 4.6% for the week entering today, declined 1.0% and saw the biggest loss among the major indices.

Eight of the 11 S&P 500 sectors closed with a loss, led by the energy sector (-2.8%), which followed oil prices lower ($75.40, -1.51, -2.0%). The energy sector, however, was the only sector down more than 1.0%.

Conversely, the health care sector (+1.5%) was the only sector that gained more than 1.0%. UnitedHealth played a big part in that sector's outperformance and was the reason why the Dow Jones Industrial Average was able to maintain a posture in positive territory throughout the day.

Market internals revealed the profit-taking inclination that took root today. Decliners outpaced advancers by a 3-to-1 margin at the NYSE and a better than 2-to-1 margin at the Nasdaq. Once again, volume at the NYSE was a lower-than-average 815 million shares.

Reviewing Friday's economic data:

• The preliminary July University of Michigan Consumer Sentiment Index checked in at 72.6 (Briefing.com consensus 65.6) versus the final reading of 64.4 for June. In the same period a year ago, the index stood at 51.5.
  • The key takeaway from the report is that consumer sentiment about the economic outlook has improved with the slowdown in inflation and the ongoing stability in labor markets.
• Import prices declined 0.2% in June following an upwardly revised 0.4% decline (from -0.6%) in May. Excluding fuel, import prices were down 0.4% following an upwardly revised 0.0% (from -0.1%) in May. Export prices, in turn, were down 0.9% in June following an unrevised 1.9% decline in May. Excluding agricultural products, export prices were down 0.9% following a downwardly revised 1.9% decline (from -1.8%) in May.
  • On a year-over-year basis, import prices were down 6.1%, versus being up 10.7% for the 12-month period ending June 2022, and export prices were down 12.0%, versus up 18.6% for the 12-month period ending June 2022.