U.S. stocks traded higher as technology issues recovered from a two-session slide to lead the advance, though gains may have been limited ahead of tomorrow’s Fed monetary policy decision, with a rate hike widely anticipated. Treasuries were mixed but mostly flat despite a hotter-than-expected wholesale price inflation report. The U.S. dollar dipped, gold saw minor gains and crude oil prices were also higher.
The Dow Jones Industrial Average (DJIA) increased 93 points (0.4%) to 21,328, the S&P 500 Index gained 11 points (0.5%) to 2,440, and the Nasdaq Composite jumped 45 points (0.7%) to 6,220. In moderately-heavy volume, 825 million shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq. WTI crude oil increased $0.38 to $46.46 per barrel and wholesale gasoline was $0.01 higher at $1.50 per gallon. Elsewhere, the Bloomberg gold spot price increased $0.74 to $1,266.92 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% lower at 97.00.
Dow member Merck & Co. Inc. (MRK $63) announced that it has paused the enrollment in two trials of its treatment for blood cancer, multiple myeloma, as it looks into reports of deaths for patients using the drug. MRK traded lower.
Cheesecake Factory Inc. (CAKE $53) fell sharply after the restaurant reported that it expects Q2 same-store sales to decline 1.0% year-over-year (y/y), versus the FactSet expectation of a 1.7% gain. The company noted heightened volatility in week-to-week sales trends, indicative of uncertainty on the part of many consumers, as well as pockets of softness, notably in the East and Midwest.
The technology sector recovered somewhat from a rollover that led a two-day slip in the equity markets from record high territory. Concerns have flared up about the rally in the group that has led the stock market run. Schwab’s Director of Market and Sector Analysis, Brad Sorensen, CFA, notes in his latest Schwab Sector Views: Technology—Too Far or Room to Run?, the tech run likely won’t go on forever—nothing does—but we don’t see the unabashed enthusiasm for the group that would make us more concerned, and valuations aren’t extended to the point that we believe investors should start to worry. That doesn’t mean investors who have developed too large a position in tech relative to their risk tolerances shouldn’t rebalance and take some profits. But we continue to see positive developments and believe the run in the tech sector still has further to go.
The Producer Price Index (PPI) (chart) showed prices at the wholesale level in May were flat month-over-month (m/m), matching the Bloomberg expectation and compared to April’s unrevised 0.5% gain. The core rate, which excludes food and energy, was up 0.3%, versus forecasts of a 0.1% advance and April’s unrevised 0.4% increase. Y/Y, the headline rate was 2.4% higher, above projections of a 2.3% increase, and the core PPI increased 2.1% last month, topping estimates of a 1.9% gain. In April, producer prices were 2.5% higher and up 1.9% for the headline and core rates, respectively.
The National Federation of Independent Business (NFIB) Small Business Optimism Index for May remained at April’s unrevised 104.5 level, matching expectations.
Treasuries were mixed and little changed, with the yield on the 2-year note increasing 1 basis point (bp) to 1.36%, while the yields on the 10-year note and the 30-year bond decreased 1 bp to 2.21% and 2.86%, respectively. Schwab Center for Financial Research – Market Analysis Group
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