Consumer Sentiment Craters as Stocks Eek Out Gains…..

U.S. stocks finished another quiet session higher, but at arm’s length of the flatline after August’s consumer sentiment unexpectedly fell to the lowest level since 2011. The drop in sentiment was widespread and came amid dampened confidence across all aspects of the economy, as the resurgence of COVID-19, in the form of the Delta variant was cited as a primary culprit. Cyclical/value stocks, which led weekly gains, largely reversed to the downside, while growth-related issues in the Information Technology and Communication Services sectors squeezed out gains. A solid Q2 earnings season continued to head down the home stretch, as Dow member Walt Disney rose in the wake of its stronger-than-expected results and DoorDash overcame early pressure that stemmed from its wider-than-expected loss and some cautious commentary. Treasuries rallied to apply noticeable downside pressure on yields and the U.S. dollar gave back the week’s advance. Meanwhile, gold jumped, and crude oil prices dropped. Europe held onto early gains and closed higher, but Asia finished mixed as China and Hong Kong resumed a recent selloff.

The Dow Jones Industrial Average rose 16 points to 35,515, the S&P 500 Index gained 7 points (0.2%) to 4,468, while the Nasdaq Composite increased 7 points to 14,823. In moderate volume, 640 million shares were traded on the NYSE and 4.0 billion shares changed hands on the Nasdaq. WTI crude oil moved $0.65 lower to $68.44 per barrel. Elsewhere, the gold spot price rallied $26.40 to $1,778.20 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—fell 0.6% to 92.50. Markets were mixed for the week, as the DJIA advanced 0.9% and the S&P 500 rose 0.7%, while the Nasdaq Composite dipped 0.1%.

The August preliminary University of Michigan Consumer Sentiment Index plummeted to 70.2 versus the Bloomberg estimate calling for it to be unchanged at July’s 81.2 reading. The index fell to the lowest level since December 2011 and below the April 2020 low of 71.8 as both the current conditions and the expectations components of the index fell sharply. The 1-year inflation forecast dipped to 4.6% from July’s 4.7% rate, in line with forecasts, and the 5-10 year inflation forecast moved higher to 3.0% from the prior month’s 2.8% level.

The University of Michigan said, “The losses in early August were widespread across income, age, and education subgroups and observed across all regions. Moreover, the losses covered all aspects of the economy, from personal finances to prospects for the economy, including inflation and unemployment. There is little doubt that the pandemic’s resurgence due to the Delta variant has been met with a mixture of reason and emotion. Consumers have correctly reasoned that the economy’s performance will be diminished over the next several months, but the extraordinary surge in negative economic assessments also reflects an emotional response, mainly from dashed hopes that the pandemic would soon end.”

The Import Price Index rose 0.3% month-over-month (m/m) for July, versus the Bloomberg consensus estimate of a 0.6% gain, and compared to June’s upwardly-revised 1.1% rise. Versus last year, prices were up by 10.2%, compared to forecasts of a 10.5% increase and June’s upwardly-adjusted 11.3% gain.

Treasuries rallied following the consumer sentiment report, as the yield on the 2-year note dipped 1 basis point (bp) 0.21%, while the yields on the 10-year note and 30-year bond each declined 7 bps to 1.29% and 1.94%, respectively.

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