[BRIEFING.COM] A softer than expected read on a closely watched economic report gave buyers a reason to extend the technically-driven momentum that closed Wednesday's indices at multi-year highs. Weakness in technology stocks helped stunt the market's advance, but the Dow and S&P 500 still managed to close at 4 ¾-year highs. The Nasdaq did not fare so well, and booked a loss.
Last month, the core rate of the Consumer Price Index - which excludes food and energy - rose 0.1%. Economists had expected a 0.2% increase. The report was good news in that was not bad news, and it gave the market a sense that the end of tightening is nearing. The data assuages worries over a further increase in inflation, and it was well received by both the stock and bond markets. In our view, though, the trend remains ambiguous. The year-over-year increase was 2.1%, and the rate of increase over the past three months was 2.0%. It is unclear whether inflation is moderate enough to prevent the Fed from raising rates more than just one additional time. A rate hike in March is widely expected, and one after that is possible. Today's read feeds the argument that a third hike may not happen, but, ultimately, monetary policy remains uncertain. The 0.1% rise has not changed our view on the market, and we remain Neutral.
Treasuries rallied on the read. Technical factors and the geopolitical front also played parts in that market's improvement. Yields fell across the curve, and the stock market benefited. The 10-year has particularly been on stock traders' radar; the benchmark bond rose 22 ticks and fell to a 4.64% yield. That is down from 4.76% on Monday. Rate-sensitive areas fared well. The Utilities sector advanced 0.7%, homebuilders gained more than 2%, and the Financial sector notched 0.4%. The investment banking and brokerage industry occupied much of the latter sector's spotlight again today. Bear Stearns (BSC 133.26 -0.95) delivered record earnings results that far exceeded analysts' expectations. But because its news came on the heels of similarly outstanding results from Goldman Sachs (GS 147.69 -1.31) and Lehman Brothers (LEH 142.42 -1.73), traders took the opportunity to secure some of the profits the industry has recently registered. A modest decline in the group pushed the Financial sector off of its high.
On account of a spike in prices across the energy complex, the Energy sector (+1.5%) contributed some spirited leadership. The price of crude pushed $64 per barrel intra-day, and closed about 2.0% higher at $63.45 per barrel. A decline in natural gas inventory, although it was less than expected, was a catalyst. Ongoing geopolitical turmoil and colder temperatures in some parts of the country also helped fuel the rise. Higher energy prices weighed on trade, but investors' attention was somewhat diverted by positive bond market conditions and relief over CPI. The Consumer Discretionary sector managed to close 0.4% higher. Retailers outperformed, and, as mentioned above, homebuilders enjoyed solid buying. On a related note, February Housing Starts dropped 8%, but a decline was anticipated. As the read (2120K) was better than expected, it helped underpin the bullish tone that CPI had set for that area of the market. With respect to retailers, Gymboree (GYMB 25.50 +0.45), one of our recommended holdings for active investors, reported upside earnings and raised guidance today.
Due to an aggressive restructuring plan and a slashed divided announced by ConAgra (CAG 19.50 -0.91), the Consumer Staples sector had been the market's laggard for most of the session. Some broad-based buying helped offset ConAgra's sharp decline, however, and the sector rose 0.1%. By the end of the day, it was Tech that took the laggard tag. Weakness in semiconductors had plagued it for most of the session, and selling picked up in the afternoon. Comments about the semi industry from equipment company Kulicke & Soffa (KLIC 8.99 -2.29) spurred the decline. That stock plunged, and issues across the semi and semi equipment boards faced considerable selling. The SOX Index dropped 3.2%. Apple (AAPL 64.31 -1.92), following Bear Stearns' estimates and target price cut, also weighed heavily. The sector lost 0.9% and helped sink the Nasdaq. NYSE Adv/Dec 2150/1116...Nasdaq Adv/Dec 1506/15
DOW Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
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