Conviction Stymied Amid Mixed Consumer Data…..

The U.S. equity markets headed into the weekend lower, snapping a three-week winning streak in the process, as investors weighed mixed reads on the all-important U.S. consumer, which appeared to add some uncertainty about the robustness of the economic expansion. June retail sales bounced back from the prior month’s fall with help from clothing, restaurant, and online sales, but a preliminary read on consumer sentiment from the University of Michigan surprisingly fell amid the continued concerns about increasing inflation pressures. A revved-up Q2 earnings season and Fed Chief Jerome Powell’s pledge of the central bank’s focus on fostering a further recovery in the labor market in his testimony to Congress this week also remained in focus. Meanwhile, the persistent spreading of the Delta coronavirus variant may have also had a hand in keeping conviction in check. In earnings news, Alcoa Corporation bested Q2 forecasts and offered a positive outlook, while Alaska Air Group raised its Q2 guidance. Treasuries were little changed, and the U.S. dollar ticked higher. Gold dropped and crude oil prices nudged to the upside. Overseas, Europe finished mostly lower as some heavyweight sectors in the region saw some pressure, while markets in Asia finished out the week mixed.

The Dow Jones Industrial Average fell 299 points (0.9%) to 34,688, the S&P 500 Index declined 33 points (0.8%) to 4,327, while the Nasdaq Composite lost 116 points (0.8%) to 14,427. In moderately-heavy volume, 961 million shares were traded on the NYSE and 4.0 billion shares changed hands on the Nasdaq. WTI crude oil ticked $0.16 higher to $71.81 per barrel. Elsewhere, the gold spot price decreased $17.50 to $1,811.40 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—rose 0.1% to 92.72. Markets were lower for the week, snapping a three-week winning streak, as the DJIA shed 0.9%, the S&P 500 moved 1.0% lower, and the Nasdaq Composite tumbled 1.9%.

Retail sales stronger than expected, consumer sentiment due out after the opening bell

Advance retail sales for June unexpectedly rose by 0.6% month-over-month (m/m), versus the Bloomberg consensus forecast of a 0.3% decrease, while May’s figure was adjusted lower to a 1.7% decline. Last month’s sales ex-autos gained 1.3% m/m, compared to expectations of a 0.4% increase and May’s figure was downwardly revised to a 0.9% decrease. Sales ex-autos and gas were up 1.1% m/m, topping estimates of a 0.5% gain, and May’s reading was adjusted lower to a drop of 1.0%. The control group, a figure used to calculate GDP, rose 1.1% m/m, versus projections of a 0.4% rise and May’s negatively-revised 1.4% decrease.

The Census Bureau said sales for clothing and at department stores rose solidly, along with sales at food services and drinking places, while nonstore retail sales—which included online activity—also gained ground. Sales of autos and parts, building materials, and furniture all declined.

The July preliminary University of Michigan Consumer Sentiment Index fell to 80.8 versus the Bloomberg estimate calling for an increase to 86.5 from June’s 85.5 reading. The index fell to the lowest level since February as both the current conditions and the expectations components of the index deteriorated. The report noted that inflation has put added pressure on living standards, especially on lower- and middle-income households, and caused postponement of large discretionary purchases, especially among upper income households. The report also noted that consumers’ complaints about rising prices on homes, vehicles, and household durables reached an all-time high. The 1-year inflation forecast jumped to 4.8% from June’s 4.2% rate, the highest since August 2008 and above forecasts of 4.3%, and the 5-10 year inflation forecast ticked higher to 2.9% from the prior month’s 2.8% level.

Rounding out the economic calendar, business inventories rose 0.5% m/m in May, matching forecasts, and following April’s upwardly-revised 0.1% gain.

Treasuries were nearly flat after a rally as of late that saw yields decline sharply. The yields on the 2-year and 10-year notes were little changed at 0.23% and 1.30%, respectively, while yield on the 30-year bond ticked 1 basis point higher to 1.93%.

©2021 Charles Schwab & Co., Inc. All rights reserved. Member SIPC.

Schwab Center for Financial Research (“SCFR”) is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.