Stocks took a hit today, struggling to maintain their momentum from yesterday’s rally and potentially erasing the week’s gains. The S&P 500 declined by 0.9%, the Dow Jones Industrial Average fell 0.5%, and the Nasdaq Composite, with its tech-heavy portfolio, led the descent with a 1.4% drop.
This plunge coincided with China’s latest economic data, which provided some solace to market observers. August witnessed a surge in consumer spending and industrial production, with retail sales exceeding expectations by growing 4.6% year-over-year. This growth is a notable improvement from July’s 2.5% increase. Additionally, the unemployment rate in August improved slightly to 5.2%.
However, concerns linger, especially after the Chinese government ceased sharing youth unemployment data last month, following a record high earlier in the summer. Despite several positive economic indicators, China’s real estate investment declined nearly 9% in August year-over-year. The nation’s approach to rejuvenating the housing market and spurring growth will be under intense scrutiny in the coming months.
On the domestic front, the United Auto Workers union initiated a significant strike at select Big Three automaker facilities. Ford shares slumped while GM and Stellantis gained.
Yesterday’s market optimism was fueled by stronger-than-anticipated retail sales and wholesale price inflation data for August. These indicators of a robust U.S. consumer and ongoing price pressures could bolster the argument for further rate hikes by the Federal Reserve. As the central bank gears up for its meeting next week, current data from the CME Group’s FedWatch tool indicates a 97% likelihood of interest rates remaining unchanged.
“There was initial investor enthusiasm around inflation data coming in not too far out of expectations. On one hand, the inflation data was hotter than expected, but investors shrugged that off earlier this week thinking that the Fed would not be inclined to raise rates again next week, based on the August inflation data,” said AXS Investments analyst Greg Bassuk.
“But I think having digested the additional economic data that’s come out, as well as ongoing geopolitical pressures and other developments, we’re seeing today investors pulling back and taking a breather.”
Today’s data release from the University of Michigan’s consumer survey provided a more optimistic outlook for the Federal Reserve, too. The survey revealed that short-term inflation expectations have dropped to their lowest levels in over two years.
The survey’s director, Joanne Hsu, commented, “Consumers have taken note of the stalling slowdown in inflation, but they do expect the slowdown to resume.”
“So far, few consumers mentioned the potential federal government shutdown,” she added.
“But if the shutdown comes to bear, consumer views on the economy will likely slide, as was the case just a few months ago when the debt ceiling neared a breach.”
Recent spikes in oil prices have been a significant driver of inflation, impacting stock valuations. Today, WTI crude and Brent futures took a brief respite from their rally but remained close to their 2023 peaks. Oil should continue to weigh on bulls as the full impact of the OPEC+ production cut is priced in, which could ultimately increase rate hike odds for the Fed’s November meeting – something investors won’t want to see.