Stock Market Today – Tuesday, Aug 16: What You Need to Know

Inflation Eases in Canada; Updated GDPNow Estimate Falls

Last Updated 4:30PM EST

Stocks finished Tuesday’s choppy trading session mixed. The Nasdaq 100 fell 0.23%. Meanwhile, the S&P 500 and the Dow Jones Industrial Average are up 0.19% and 0.71%, respectively.

Inflation appears to also be easing north of the border. Canada released its CPI report for July, which met expectations of 7.6%. This was lower than the previous report of 8.1%. On a month-over-month basis, CPI also came in as expected at 0.1%, much lower than last month’s 0.7%

However, when looking at core CPI, which strips out the volatile energy and food prices, inflation rose by 6.1%. This was barely better than June’s reading of 6.2%. In addition, month-over-month core CPI actually accelerated to 0.5% when compared to the 0.3% from a month ago.

This suggests that inflation has broadened out to other parts of the economy and that falling commodity prices have not stopped the upward pressure. Indeed, it appears that inflation won’t stop all at once across all categories, meaning that it might still take a while for CPI to normalize to 2%.

In addition, The Atlanta Federal Reserve recently updated its GDPNow reading, which allows it to estimate GDP growth in real-time. Currently, it estimates that the economy will see an annualized expansion of 1.81% in the third quarter after experiencing two consecutive quarters of decline.

However, it’s worth mentioning that this is down from last week’s estimate of 2.45%. The forecast becomes more accurate the closer we get to the end of the quarter. Therefore, it will be interesting to see if the estimate falls, going forward. In the previous quarter, the estimate started off positive and eventually ended up correctly estimating a GDP decline by the end of Q2.

Because of this, investors should invest carefully, as we are not in the clear just yet.

Housing Starts Come in Lower than Expected; Building Permits Beat Expectations

Last Updated 3:00PM EST

Equity markets are mixed, heading into the final hour of today’s trading session. As of 3:00 p.m. EST, the Dow Jones Industrial Average is up 0.6%. Meanwhile, the S&P 500 and the Nasdaq 100 are down 0.01% and 0.5%, respectively.

On Tuesday, the Census Bureau released its U.S. Housing Starts report, which measures the change in new residential buildings that began construction in the reported month on an annualized basis.

In July, housing starts came in at 1.446 million versus expectations of 1.540 million. To make matters worse, on a month-over-month basis, housing starts fell by 9.6%. This comes after they increased by 2.4% in June, following an 11.9% plunge in May.

On the other hand, U.S. Building Permits beat expectations, with a print of 1.674 million compared to the forecast of 1.650 million. Nevertheless, this was a slight decline from the prior month’s report, which came in at 1.696 million, equating to a decline of 1.3% month-over-month.

These declines are likely to continue as home builder sentiment falls due to higher building and financing costs. Indeed, the U.S. NAHB Housing Market Index, which was released yesterday and measures home builder sentiment, saw a significant drop compared to the prior month.

Stocks Indices are off Their Lows Halfway into Tuesday’s Trading Session

Last Updated 12:00PM EST

Stock indices are mixed halfway into today’s trading session. As of 12:00 p.m. EST, Nasdaq 100 is down 0.1%. Meanwhile, the S&P 500 and the Dow Jones Industrial Average are up 0.3% and 0.8%, respectively.

The healthcare sector (XLV) is the laggard so far, as it is down 0.3%. Conversely, the consumer discretionary (XLY) and consumer staples sectors (XLP) are the session’s leaders, with gains of 1.6% and 1.1%, respectively. The strong performance from the two sectors can be attributed to the strong earnings results from Home Depot and Walmart.

In addition, WTI crude oil gave up its earlier gains, which caused it to slip into negative territory. At around $87 per barrel, it is near the session low of $86.71.

Meanwhile, bond yields are higher, as the U.S. 10-Year Treasury yield is now hovering around 2.84%. This represents an increase of five basis points from the previous close.

Similar movements can be seen with the Two-Year yield, which is now at 3.25%. As a result, the spread between the 10-Year and Two-Year U.S. Treasury yields is still negative, currently sitting at -41 basis points.

Stocks Indices are Mixed to Start Tuesday’s Trading Session

Last Updated 10:00AM EST

Stock indices are mixed 30 minutes into today’s trading session. As of 10:00 a.m. EST, the Dow Jones Industrial Average is up 0.2%. Meanwhile, the S&P 500 and the Nasdaq 100 are down 0.1% and 0.6%, respectively.

The technology sector (XLK) is the laggard so far, as it is down 0.8%. Conversely, the energy sector (XLE) is the session’s leader, with a gain of 0.8%.

WTI crude oil is seeing a rebound from yesterday’s sell-off. However, it remains below $90 per barrel, as yesterday’s weak economic data from China is still weighing down the commodity. In addition, investors are waiting for more information regarding a deal with Iran, which would allow it to increase its oil exports. As a result, the price is hovering around the high-$89 per barrel range.

Meanwhile, bond yields are higher, as the U.S. 10-Year Treasury yield is now hovering around 2.85%. This represents an increase of more than six basis points from the previous close.

Similar movements can be seen with the Two-Year yield, which is now at 3.23%. However, the spread between the 10-Year and Two-Year U.S. Treasury yields is still negative, as it currently sits at -38 basis points.

Pre-Market Update

U.S. stock futures dropped early Tuesday morning as investors await minutes from the Federal Reserve’s July meeting on Wednesday.

Futures on the Dow Jones Industrial Average (DJIA) inched 0.06% lower, while those on the S&P 500 (SPX) lost 0.17%, as of 5.53 a.m. EST, Tuesday. Meanwhile, the Nasdaq 100 (NDX) futures dipped 0.20%.

After-hour sentiments were also affected by the weak earnings and trimmed outlooks of ZipRecruiter (ZIP), whose shares tanked 5%, and Compass (COMP), whose shares plummeted more than 13%, in extended trading on Monday.

On Monday, markets were abuzz with news of an unexpected move by China’s administration. Notably, China’s slowing economic growth prompted a surprise cut in interest rates to spur spending and give a push to the economy. Following the news, the dollar strengthened 0.7% against the Chinese yuan.

The alarming slowdown in the world’s second-largest economy refueled fears of an economic slowdown in the U.S.

Coming back home, the U.S. is fighting issues of its own. Last week was celebratory, with July’s inflation readings coming in better-than-expected and temporarily suppressing the concerns of a recession. However, the rally appears to have been a bear-market rally rather than the beginning of a bull market.

According to the National Association of Home Builders, home builder sentiment has tipped into negative territory this month, pushed by higher costs of owning and building a house. Economists believe that elevated costs have finally brought the U.S. housing market into a recession.

On Wednesday, U.S. retail sales data for July will be released, giving us insight into how consumer spending on discretionary items held up last month.

Keeping with the discussion about retail, major retailers such as Home Depot (HD) and Walmart (WMT) are set to release quarterly numbers before the market opens on Tuesday. Also, the quarterly earnings of Target (TGT) and Lowe’s (LOW) are geared up for a Wednesday release.

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