US Stock Markets Decline Amid Economic Concerns
On Friday, the S&P 500 Index fell by 0.17%, the Dow Jones Industrial Average decreased by 0.20%, and the Nasdaq 100 Index dropped by 0.13%. E-mini S&P futures declined by 0.27%, and September E-mini Nasdaq futures fell by 0.16%. The downturn in stocks was attributed to weak US retail sales and consumer sentiment reports, which slightly lowered the odds of a Federal Reserve rate hike in September from 35% to 32%. However, these reports also raised concerns about a weakening US economy and potential declines in corporate earnings.
US tech stocks received some support from a rally in the South Korean Kospi index, which rose over 2% due to significant gains in Samsung Electronics and SK Hynix. Despite this, US chip stocks struggled on Friday, influenced by poor momentum and rising Treasury yields, with the iShares Semiconductor ETF closing lower.
Retail sales in July fell by 0.6% month-over-month, significantly below market expectations of a 0.1% increase. When excluding autos and gas, retail sales still declined by 0.2%, contrary to expectations of a 0.3% rise. This weak performance was partly attributed to technical factors, including a temporary boost in June from World Cup spending and Amazon's Prime Day occurring in June last year. The data suggested that consumers are becoming more cautious due to high prices and increased gasoline costs.
The University of Michigan’s preliminary consumer sentiment index for August fell by 4.2 points to 51.0, which was worse than the anticipated minor decline to 55.0. Despite these negative reports, stocks had some support from favorable inflation data released earlier in the week. The July core Consumer Price Index matched a 5.5-year low of 2.5% year-over-year, while the nominal CPI decreased to 3.4% from 3.5% in June.
In the oil market, September WTI crude prices rose by 1.42% following reports of attacks on two Abu Dhabi oil vessels by Iran. However, oil prices remained below a recent two-week high as the Trump administration shifted its strategy towards economic pressure rather than military action to address tensions with Iran.
The outlook for corporate earnings remains positive, with the S&P 500 expected to see nearly 32% earnings growth in Q2, significantly above projections of 23%. AI spending is anticipated to drive much of this growth, with AI infrastructure stocks contributing substantially to earnings-per-share growth. So far, 85% of the S&P 500 companies that have reported Q2 earnings have exceeded estimates.
Markets are currently pricing in a 32% chance of a 25 basis point rate hike at the upcoming Federal Open Market Committee meeting on September 15-16, down from 35% the previous day. Overseas markets closed mixed, with the Euro Stoxx 50 down 0.09% and China's Shanghai Composite up 0.01%.
The 10-year Treasury note yield rose to 4.682%, reflecting ongoing concerns about inflation despite weak economic reports. Inflation expectations remained high, with consumers anticipating 1-year inflation at 4.3%, up from 4.2% in July. European government bond yields also increased, with the 10-year German bund yield rising to 3.204% and the UK gilt yield reaching 5.037%.
In stock performance, the Magnificent Seven tech stocks mostly closed lower, with Meta and Amazon each down about 0.9%. Chip stocks showed mixed results, with some companies like AMD seeing gains while others like Applied Materials fell after failing to meet high expectations. Overall, the market's reaction to economic data and corporate earnings continues to shape investor sentiment and stock performance.
