Stocks rose on Wednesday after solid retail sales data indicated that the economy’s main driver is still holding up, despite concerns about inflation and potential rate cuts by the Federal Reserve. Smaller firms led gains, with the Russell 2000 poised for its biggest five-day run since May 2020.
However, megacap stocks, which have been driving the bull market, came under pressure, with Nvidia Corp. down 2.5%. Traders also analyzed financial earnings, with Bank of America Corp. rising after predicting an increase in net interest income by the end of the year, while Morgan Stanley fell short of estimates in its wealth business results.
“To see a strong retail sales print is healthy — even if that causes some short-term volatility in the rate-cut outlook,” said Bret Kenwell at eToro. “It’s far better to see the Fed eventually lower rates on falling inflation than to see the Fed cutting rates to bolster a weakened economy.”
The S&P 500 hovered near 5,640, the Dow Jones Industrial Average rose 1.2%, and the Russell 2000 of small caps gained 2%. The tech-heavy Nasdaq 100 fell 0.4%, with UnitedHealth Group Inc. climbing on strong results and Charles Schwab Corp. sinking as new brokerage accounts missed estimates.
Treasury 10-year yields declined two basis points to 4.21%, with analysts noting that the retail sales data was “bond-bearish” but unlikely to change expectations for a September Fed rate cut.
Separate data showed a decline in confidence among US homebuilders for a third straight month in July, as interest rates remained high and weighed on sales.
Overall, the retail sales data for June, excluding the impact of a cyberattack on auto dealerships, showed a positive trend, with consumers regaining their footing at the end of the second quarter. This report, however, does not negate expectations of a Fed rate cut in September, unless inflation-related data indicates otherwise.
Fed Chair Jerome Powell indicated confidence in the economy’s direction, with improving corporate earnings and strong demand for AI-linked companies supporting the stock market. The S&P 500 Index is on track for its longest stretch without a 2% decline since 2007.
In corporate news, Charles Schwab Corp. reported fewer new brokerage accounts than expected, PNC Financial Services Group Inc. saw an increase in net interest income, Microsoft Corp. faces an antitrust probe in the UK, Philip Morris International Inc. is expanding production of Zyn, and Starboard Value has taken a stake in Match Group Inc.
Key events this week include Eurozone CPI, US housing starts, Fed Beige Book, ECB rate decision, and various Fed speakers.
In the market, the S&P 500 rose 0.2%, the Nasdaq 100 fell 0.4%, the Dow Jones Industrial Average rose 1.2%, and the Stoxx Europe 600 fell 0.4%. The Bloomberg Dollar Spot Index rose 0.2%, while cryptocurrencies and commodities saw mixed movements.
