Note: Our daily “S&P 500 Outlook, Forecast, and Trading plan for Thursday, 06/6” will be posted around 8:30am EDT, Thursday.
THE GIST (“THE WHAT”)
Building on previous session’s Fed-led relief rally, the S&P 500 index extended gains to close decisively above the psychologically important 2800 level. Growing expectations that the Fed will support the economic expansion, coupled with the hopes that Trump administration will avoid levying tariffs on Mexican goods boosted the index for the second session in a row. Disappointing private jobs data further validated the Fed’s dovish indications of rate cuts.
Opening higher, the index pared gains in the early session following a mixed bag of economic data but gained a strong upward momentum in the afternoon session to close near session highs at 2826.15, up 22.88 points and gaining 0.82% over previous session’s close. While defensive sectors led the day’s advances, Technology stocks fueled the gains. Energy was the only sector to buck the trend on the back of a sharp slide in oil prices.
THE DETAILS (The “How & Why”):
The ADP’s employment report indicated that only 27,000 new non-farm private jobs were added in the month of May, sharply below the expected figure of 175,000, suggesting an economic slowdown. While the 10-year Treasury yield settled mostly unchanged at 2.12%, the short-term 2-year Treasury yield fell to its 18-months low at 1.10%.
Defensive sectors rallied on the back of low yields. Real Estate and Utilities reversed their previous session’s losses to be biggest percentage gainers in today’s broad-based rally, up 2.33% and 2.14%, respectively.
Technology stocks extended their gains by 1.38%. Salesforce.com Inc. was the top gainer within this space after the cloud-based software company reported earnings that were better-than-expected. Skyworks Solution Inc., however, dragged the semiconductor space lower after it cut guidance in the wake of U.S. crackdown on Huawei Technologies. Micron Technology Inc., Qualcomm Inc. and Microchip Technology also shed 3.33%, 2.09% and 2.29%, respectively.
Hopes that the Mexican tariffs will be avoided lifted trade-sensitive sectors. Industrials and Materials closed higher by 1.07% and 0.78%. Campbell Soup Co. lifted the broader Consumer Staples sector by 1.12%. The producer of canned soups and related products soared 10.02% after it beat earnings expectations and raised its profit outlook, citing improved focus on its two core businesses, Campbell Snacks and Campbell Meals and Beverages.
On the other hand, Energy was the only sector not participating in today’s broad-based rally. A sharp increase in U.S. crude inventories by 44 million barrels pushed the oil prices into a bear market territory. Domestic crude supplies rose by 6.8 million barrels last week. Cimarex Energy Co., Occidental Petroleum Corp. and Halliburton Co. were the worst performer of the session, tumbling by 5.38%, 4.55% and 3.51%, respectively.