Stocks Finished Lower Amid Release of Fed’s Meeting Minutes…..

U.S. stocks closed out lower after the Fed released the highly anticipated minutes from the monetary policy meeting in July. The Fed affirmed further rate hikes in the future, but remarked it would likely slow down the pace of rate increases at some point. The markets digested mixed signals from the retail front, with Target Corporation missing earnings estimates, while Lowe’s Companies topped profit projections and July retail sales came in mostly higher than anticipated. Last week’s mortgage applications declined following a rise in the week before. Additionally, TJX Companies beat earnings expectations but lowered guidance. Treasuries were lower to lift yields, and the U.S. dollar continued to climb. Crude oil prices increased, and gold decreased. In other economic news, June business inventories rose in line with forecasts. Asia finished mostly to the upside and Europe ended the day lower on the heels of hotter-than-expected U.K. inflation reports.

The Dow Jones Industrial Average declined 172 points (0.5%) to 33,980, the S&P 500 Index decreased 31 points (0.7%) to 4,274, and the Nasdaq Composite fell 164 points (1.3%) to 12,938. In moderate volume, 3.9 billion shares of NYSE-listed stocks were traded, and 5.1 billion shares changed hands on the Nasdaq. WTI crude oil went up $1.58 to $88.11 per barrel. Elsewhere, the gold spot price decreased $10.00 to $1,779.70 per ounce, and the Dollar Index increased 0.1% to 106.61.

Advance retail sales for July came in flat month-over-month (m/m), versus the Bloomberg consensus forecast of a 0.1% rise, and compared to June’s downwardly adjusted 0.8% increase. Last month’s sales ex-autos rose 0.4% m/m, compared to expectations of a 0.1% dip and as June’s figure was revised lower to a 0.9% gain. Sales ex-autos and gas were up 0.7% m/m, above estimates of a 0.4% rise, and matching June’s unadjusted gain. The control group, a figure used to calculate GDP, increased 0.8% m/m, versus projections of a 0.6% gain, and following June’s downwardly revised 0.7% rise.

Data showed that department store m/m sales growth, while still negative, contracted slightly as stores started lowering prices to meet consumer demand, according to Bloomberg. Building materials and electronics sales both rose m/m, while sales of apparel, gas, motor vehicles, as well as food and drink services all declined.

The MBA Mortgage Application Index declined 2.3% last week, following the prior week’s rise of 0.2%. The index snapped a two-week winning streak as a 5.4% drop for the Refinance Index was accompanied by a 0.8% dip for the Purchase Index. The decrease came even as the average 30-year mortgage rate moved 2 basis points (bps) lower to 5.45% but is up 239 bps versus a year ago.

Business inventories rose 1.4% m/m in June, matching forecasts, after May’s upwardly revised increase of 1.6%.

The Fed released the highly anticipated minutes for the July FOMC meeting, in which the target for the benchmark interest rate was raised by 75 bps to a range of 2.25% to 2.50%. In the release, the Fed remarked that moving to a restrictive stance and raising rates would be appropriate because of high inflation, but did emphasize that its decisions would be data-dependent. The participants of the meeting discussed their concerns about the risk of tightening monetary policy more than necessary in response to the constantly changing nature of the economic environment.

When discussing the appropriate policy stance, participants remarked that the labor market was very tight, and that inflation was far above the objective, but the lowering commodity prices that the markets took as a sign of peak inflation should not be relied on as the prices could quickly rebound. Participants judged that as the stance of monetary policy tightened further, it would likely become appropriate at some point to slow the pace of rate increases.

Treasuries have been choppy as of late with the markets digesting some cooler-than-expected July inflation data and last month’s stronger-than-expected labor report, grappling with the economic and monetary policy implications. The U.S. dollar had also resumed a rally after a recent pullback from multi-decade highs reached in July. Treasuries were lower, as the yield on the 2-year Treasury note was up 3 bps to 3.37%, the yield on the 10-year note rose 6 bps to 2.88%, and as the 30-year bond rate gained 3 bps to 3.14%.

©2022 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.