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As Yogi Berra once said, "It ain't over until it is over". Welll it is over. The week is over. For the day, the U.S. stocks finished mostly lower on Friday, but the declines were modest as the major indices wrapped up a mixed week. The S&P 500 reached a new record high during the week before backing off into the Friday close, while small caps were the standout performer. The Russell 2000 rose 0.51% on the day and closed at a new record high.
Dow industrial average: 53,737.38, -108.01 points or -0.20%
S&P 500: 7,785.75, -13.23 points or -0.17%
Nasdaq composite: 26,729.16, -73.86 points or -0.28%
Russell 2000: 3,068.42, +15.59 points or +0.51%
Nasdaq 100: 30,046.14, -38.36 points or -0.13%
For the week, the Dow was the only major index to finish lower, while the Russell 2000 and Nasdaq 100 led the gains:
Dow: -0.56%
S&P 500: +0.36%
Nasdaq: +0.14%
Russell 2000: +1.11%
Nasdaq 100: +1.09%
The modest weakness in stocks came despite a softer U.S. dollar. The greenback moved lower against all of the major currencies, with the largest declines coming against the NZD and CAD. The weaker dollar followed a disappointing U.S. retail sales report that added another question mark over the strength of the U.S. consumer.
The percentage changes versus the dollar showed:
EUR: +0.36%
JPY: +0.11%
GBP: +0.33%
CHF: +0.09%
CAD: +0.42%
AUD: +0.38%
NZD: +0.65%
The NZD was the strongest of the major currencies, while the JPY and CHF posted the smallest gains versus the dollar.
The economic catalyst for much of the dollar weakness came from July retail sales. Headline sales fell 0.6%, well below expectations for a 0.1% increase and following a 0.2% gain in June. Excluding autos, sales fell 0.3%, while the important retail control group declined 0.4%. It was the first monthly decline in headline retail sales in nine months.
There were some pockets of strength underneath the headline. Building-material sales rose 0.3%, while food services and drinking places increased 0.5%. However, motor vehicles and parts fell 1.8%, electronics sales declined 0.5%, and non-store retailers dropped 2.2%.
One month does not make a trend, but the report puts a dent in the idea that the U.S. consumer will continue to spend at a solid pace as long as the labor market remains relatively stable.
Adding to the softer consumer picture was the preliminary University of Michigan consumer sentiment survey for August. Sentiment fell to 51.0 from 55.2 in July and was well below the 54.5 expected. Current conditions fell to 51.8 versus 55.0 expected, while expectations dropped to 50.6 versus 55.2 expected.
Inflation expectations were less encouraging. One-year expectations edged higher to 4.3% from 4.2%, while five-year expectations remained elevated at 3.3%. That leaves the Fed looking at a somewhat uncomfortable combination of weaker consumer readings but inflation expectations that remain above desired levels.
Chicago Fed President Austan Goolsbee played down the significance of one weak retail sales report, saying U.S. GDP and the labor market remain basically stable. He said continued weakness in spending could become concerning, but emphasized the need for more data. Goolsbee also said he was encouraged by the recent CPI reports.
Goolsbee raised another interesting issue for markets, pointing to weakness in recent productivity readings. If that weakness persists, it could complicate the inflation outlook and potentially challenge some of the optimism surrounding the productivity benefits expected from AI investment.
While the dollar weakened on the softer economic data, U.S. yields finished higher from the levels shown late in the session. Using the 2-, 5-, 10- and 30-year maturities as proxies for the curve:
2-year: 4.171%, +3.1 basis points
5-year: 4.362%, +4.9 basis points
10-year: 4.692%, +5.1 basis points
30-year: 5.260%, +4.9 basis points
The larger increases farther out the curve resulted in a modest steepening from the 2-year through the longer maturities. The pressure on longer-term yields remains an important issue for equities, particularly with valuations elevated and markets continuing to weigh inflation, energy prices and the enormous capital spending associated with the AI buildout.
The rise in yields was not confined to the U.S. European benchmark yields also jumped sharply Friday, and that helped put some pressure on equities across the region.
European shares closed mostly lower, although Germany's DAX bucked the trend:
German DAX: +0.51% at 26,432.87
France CAC 40: -0.16% at 8,636.81
UK FTSE 100: -0.21% at 10,750.12
Spain Ibex: -0.06% at 20,156.61
Italy FTSE MIB: -0.20% at 53,583.60
The moves in European 10-year yields were considerably larger:
Germany: 3.205%, +7.1 basis points
France: 4.048%, +9.9 basis points
UK: 5.042%, +9.0 basis points
Spain: 3.652%, +8.4 basis points
Italy: 3.990%, +9.3 basis points
In other markets, crude oil was a notable winner, while gold and silver also moved higher. Bitcoin moved in the opposite direction:
Crude oil: $82.38, +$1.13 or +1.39%
Gold: $4,376.16, +$26.14 or +0.60%
Silver: $64.71, +$0.24 or +0.37%
Bitcoin: $62,855, -$563 or -0.89%
So the week ends with a number of competing signals for traders to digest. The S&P 500 reached another record during the week but could not hold onto the momentum Friday. The Russell 2000, meanwhile, ended at a record, suggesting the equity rally continues to broaden beyond the mega-cap names.
At the same time, retail sales and consumer sentiment raised questions about the strength of the U.S. consumer, the dollar weakened, oil moved higher, and global bond yields remain a potential headwind.
That combination sets up another interesting week ahead as traders continue to balance growth, inflation and Fed expectations against equity markets that remain near record levels.Thank you for your support. Hope you have a good and safe weekend.
This article was written by Greg Michalowski at investinglive.com.