Stocks were off to a modestly weaker start Friday, edging lower after a weaker-than-expected rise in July retail sales raised questions about the durability of the economy’s snapback from its pandemic-induced collapse in the spring.
Market participants were also bracing for a round of virtual trade talks between the U.S. and China this weekend against a backdrop of rising tensions between the two countries.
What are major indexes doing?
The Dow Jones Industrial Average (DJIA) fell 61 points, or 0.2%, to around 27,829, while the S&P 500 (SPX) was off 3 points or less than 0.1%, at 3,370. The Nasdaq Composite (COMP) shed 23 points, or 0.2%, to trade at 11,018.
The Dow on Thursday fell 80.12 points, or 0.3%, to end at 27,896.72, while the S&P 500 (SPX)lost 6.92 points, or 0.2%, to close at 3,373.43, after hitting an intraday peak at 3,387.24, temporarily trading above its Feb. 19 closing record of 3,386.15. The Nasdaq Composite rose 30.27 points, or 0.3%, higher to close at 11,042.50. The major indexes remain on track for weekly gains.
What’s driving the market?
Retail sales rose 1.2% in July, the third straight monthly increase but weaker than the 2% rise forecast by economists surveyed by MarketWatch. Excluding autos and gasoline, sales rose 1.5%, beating expectations for a 1.1% increase. June sales were revised higher.
Overall, the report painted a positive picture of consumer activity, some analysts said. The figures left retail sales higher in July than they were in January or February before the pandemic struck, noted Marshall Gittler, head of investment research at BDSwiss Holding PLC.
But economists warned that the report indicated consumer spending had lost some steam, underlining fears of a further slowdown.
The data “underscores that wary consumers have turned more cautious amid a virus resurgence and fading stimulus support,” said Lydia Boussour, senior economist at Oxford Economics. She said the data also matches up with a stall in the firm’s own recovery tracker, confirming that “consumers are likely to keep a tight rein on their spending until a medical solution to the pandemic is found.”
Analysts said the continued deadlock between congressional Democrats and the White House over a coronavirus aid package could be limiting upside for the market. Negotiations to extend measures, including $600 a week in additional unemployment benefits, that expired at the end of July have remained stalled since the end of last week. President Donald Trump last weekend signed executive orders that would partially extend some measures but those face questions about their legality and logistics.
Meanwhile, virtual talks between U.S. and Chinese officials this weekend are meant to review China’s compliance with the phase one trade deal agreed last year. Unease surrounds the talks given growing tensions over China’s actions in Hong Kong and other issues.
For investors “to increase their risk exposures again, US Democrats and Republicans may have to agree over a new fiscal package, and U.S. and Chinese officials may need to provide encouraging remarks over their nations’ trade relationship,” said Charalambos Pissouros, senior market analyst at JFD Group, in a note.
The tone for global equities wasn’t helped by a 1.1% decline in Chinese retail sales in July, versus expectations for a flat reading.
In other data, second-quarter productivity rose by 7.3%, while unit labor costs jumped 12.2%. Economists were looking for a 1.4% productivity rise and an 8.7% rise in costs.
July industrial production saw a 3% rise, topping forecasts for an increase of 2.7%. Capacity utilization last month rose to 70.6% from 68.5% in June, versus expectations for a reading of 70.5%.
An initial reading on the University of Michigan’s August consumer sentiment index came in at 72.8 compared with expectations for 72.
Which companies are in focus?
- Epic Games, the maker of “Fortnite” launched a legal battle with Apple Inc. (AAPL) and Google parent Alphabet Inc. (GOOG)(GOOGL) accusing the tech giants of illegally exploiting a monopoly on app and in-app purchases.
- Shares of Applied Materials Inc. (AMAT) rose 6.5% after the chip maker supplier late Thursday reported results and an outlook that topped Wall Street forecasts.
- DraftKings Inc. (DKNG) shares were off 8.1% after reporting a wider-than-expected loss, though revenues topped Wall Street expectations. The stock was already under pressure after Bloomberg reported that the Internal Revenue Service will require fantasy sports companies to pay federal excise taxes on their entry fees.
How are other markets trading?
The yield on the 10-year Treasury note (BX:TMUBMUSD10Y) was off 1 basis point at 0.703%. Bond prices move inversely to yields.
The greenback continued its slide, with the ICE U.S. Dollar Index, (DXY) a gauge of the buck against a half-dozen major rivals, down 0.2% to 93.121.
Video: Euro zone trade surplus surges as imports drop (Reuters)