Retail and technology stocks led Wall Street higher on Wednesday and the small-cap Russell 2000 hit a record high, even as a rise in bond yields to an almost seven-year high suggested more competition for equities as investors fretted over geopolitics.
Smaller companies continued this year’s trend of outperforming their larger rivals with the Russell 2000 up 1 percent.
Macy’s rose 10.8 percent after the retail chain reported results that exceeded Street consensus estimates. Macy’s also raised its earnings outlook. As a result, the shares of rival department stores J.C. Penney, Kohl’s, Nordstrom and Target also gained ground. The S&P 500 Department Store index was up 5.2 percent, its largest daily increase in nearly six months.
Macy’s earnings pushed the consumer discretionary sector higher, a day after government data showing an acceleration of consumer spending increased inflation concerns and helped send Treasury yields higher.
10-year Treasuries hit 3.10 percent for the first time since July 2011, continuing to pressure stocks as investors consider whether government bonds pose a more attractive option to riskier equities.
Weeks of diplomatic progress were thrown into doubt when North Korea postponed high-level talks with Seoul and threatened to pull out of its historic meeting with the United States. The uncertainty compounded investor jitters ahead of United States-China trade negotiations.
Of the 11 major sectors of the S&P 500, only the rate-sensitive utility and real estate sectors closed in negative territory. The tech sector rose 0.4 percent and gave the S&P 500 its largest boost among the other major sectors in the S&P 500 index.
Micron Technology rose 4.6 percent after RBC Capital Markets initiated coverage of the chipmaker with an “outperform” rating. The Philadelphia SE semiconductor index was up 1.4 percent.
Facebook was the biggest drag on the S&P 500, closing down 0.6 percent, on news that Chief Executive Mark Zuckerberg would appear before members of the European Parliament to answer questions about the improper use of users’ data.
3M weighed on the Dow, slipping 1.1 percent after Jefferies downgraded the stock to “hold.”
Approximately 6.22 billion shares changed hands on the major domestic equity exchanges, as compared to a 6.66 billion share average over the past 20 trading days.
Day’s Economic News
The upbeat report from the Federal Reserve on Wednesday indicated a rise in consumer spending during April. At the same time, a sharp drop in homebuilding and building permits last month put a wrinkle on the brightening economic picture.
Industrial production expanded 0.7 percent in April, matching March’s increase, the Fed said. Manufacturing output, which accounts for more than 70 percent of industrial production, rose 0.5 percent as a 2.3 percent increase in machinery production offset a decline in production of primary metals and fabricated metal products.
The industrial sector is being supported by strengthening domestic and global economy, a weakened dollar and tax cuts. However, there are concerns that trade tensions between the United States and China could slow momentum.
A survey early this month showed trade policy as the top concern for manufacturers, with varies industries complaining that the Trump administration’s tariffs on steel and aluminum imports had pushed up commodity prices. Some manufacturers reported that “business planning is at a standstill” because of the tariffs.
Last month, mining production increased 1.1 percent, aided by a 3.0 percent rise in oil and gas well drilling. Output at utilities increased 1.9 percent.
Industrial capacity utilization, a measure of how fully firms are using their resources, increased 0.4 percentage point to 78.0 percent, its highest reading since March 2015. It remains 1.8 percentage points below its long-run average.
Officials at the Fed tend to look at utilization measures as a signal of how much slack remains in the economy — how far growth has room to run before it becomes inflationary.
Meanwhile, strong industrial output and a pickup in consumer spending support expectations of second-quarter growth at about a 3 percent annualized rate. That should allow the Fed to again increase interest rates, most likely in June.
In a separate report on Wednesday, the Commerce Department said housing starts fell 3.7 percent to a seasonally adjusted annual rate of 1.287 million units in April. The decline reversed March’s rise, indicating that housing continued to tread water.
Building permits fell 1.8 percent to a rate of 1.352 million units last month. Starts fell in the Northeast, West and Midwest, but rose in the South.
Single-family homebuilding, which accounts for the largest share of the housing market, edged up 0.1 percent to a rate of 894,000 units last month. Single-family homebuilding has lost momentum since setting a 948,000-unit pace last November, which was the strongest in more than 10 years.
Last month’s gain in single-family starts was outpaced by an 11.3 percent decline in groundbreaking activity on multi-family housing units. Residential construction has been hamstrung by rising prices for building materials and shortages of land and skilled workers.
While a survey on Tuesday showed confidence among single-family homebuilders rose in May, builders complained that “the record-high cost of lumber is hurting builders’ bottom lines and making it more difficult to produce competitively priced houses for newcomers to the market.”
The Trump administration in April last year imposed anti-subsidy duties on imports of Canadian softwood lumber. These constraints have left builders unable to plug an acute shortage of houses on the market, restraining home sales growth.