Stocks Tumble Following Retail Sales Miss…..

U.S. equities finished solidly lower following a drop in July retail sales, and as the markets continued to grapple with geopolitical implications of the recent collapse of the Afghanistan government and the ongoing regulatory crackdowns in China. In addition to the tumble in retail sales, August homebuilder sentiment unexpectedly fell to a thirteen-month low, but industrial production, capacity utilization and business inventories all moved higher. The markets also eyed comments from Fed Chairman Jerome Powell at a townhall meeting, but he offered little in the way of commentary on the economic outlook. On the earnings front, Dow member Walmart topped Q2 expectations but its e-commerce sales slowed, while Dow component Home Depot’s same-store sales miss overshadowed its stronger-than-expected earnings and revenues. Treasuries were little changed, and the U.S. dollar was able to regain some footing, while gold dipped and crude oil prices finished lower in volatile trading. Europe finished mixed as Energy and Financials saw some pressure, while markets in Asia were mostly lower.

The Dow Jones Industrial Average fell 282 points (0.8%) to 35,343, the S&P 500 Index declined 32 points (0.7%) to 4,448, and the Nasdaq Composite decreased 138 points (0.9%) to 14,656. In moderate volume, 803 million shares were traded on the NYSE and 4.1 billion shares changed hands on the Nasdaq. WTI crude oil moved $0.70 lower to $66.59 per barrel. Elsewhere, the gold spot price lost $3.17 to $1,784.28 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies – moved 0.6% to the upside to 93.14.

Retail sales softer than expected, Fed Chief Powell set to speak…..

Advance retail sales for July fell by 1.1% month-over-month (m/m), versus the Bloomberg consensus forecast of a 0.3% decrease, while June’s figure was adjusted higher to a 0.7% increase. Last month’s sales ex-autos declined 0.4% m/m, compared to expectations of a 0.2% increase though June’s figure was upwardly revised to a 1.6% gain. Sales ex-autos and gas were down 0.7% m/m, versus estimates of a 0.1% dip, but June’s reading was adjusted higher to a rise of 1.3%. The control group, a figure used to calculate GDP, dropped 1.0% m/m, versus projections of a 0.2% decrease though June’s figure was revised higher to a 1.4% increase.

The Federal Reserve’s report on industrial production showed a 0.9% m/m gain in July, above estimates of a 0.5% increase, and versus June’s downwardly revised 0.2% rise. Manufacturing and mining output both rose solidly but utilities production fell. Capacity utilization increased to 76.1% versus forecasts calling for a gain to 75.7% from the prior month’s unrevised 75.4% rate. Capacity utilization is 3.5 percentage points below its long-run average.

The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment in August fell to 75 from July’s 80 level, where forecasts called for it to remain. This was the lowest reading since July 2020 as the NAHB said some prospective buyers are experiencing sticker shock due to higher construction costs and stressed the need for policymakers to find long-term solutions to supply-chain issues. The report added that, “While the demographics and interest for home buying remain solid, higher costs and material access issues have resulted in lower levels of home building and even put a hold on some new home sales.” The NAHB concluded with saying, “While these supply-side limitations are holding back the market, our expectation is that production bottlenecks should ease over the coming months and the market should return to more normal conditions.”

Business inventories rose 0.8% m/m in June, matching forecasts, and following May’s upwardly-revised 0.6% gain.

Federal Reserve Chairman Jerome Powell addressed educators and students in a townhall discussion this afternoon, stating in prepared remarks that as a result of students having been forced to cope with the pandemic it will result in “an extraordinary generation” that offers a position to turn the lessons learned into “profound tools of change.” Powell did not touch on the outlook for the economy, nor monetary policy, but next week he will have another chance when policymakers meet at the annual symposium in Jackson Hole, Wyoming on August 26-28.

Treasuries finished nearly flat to pause a recent rally that was sparked by Friday’s unexpected tumble in August consumer sentiment as reported by the University of Michigan. The yields on the 2-year and 10-year notes were unchanged at 0.21% and 1.26%, respectively, while the 30-year bond rate dipped 1 basis point 1.92%.

©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.