1/18/2024

Retail sales data lowers indices

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Key points:

  • Wall Street stocks closed lower on January 18, 2024.
  • The main reason for the fall in shares was the publication of US retail sales data for December, which turned out to be higher than expected.
  • The data strengthened the view that the Federal Reserve may not begin a campaign to cut interest rates in March 2024.

Wall Street stumbles after strong December retail sales. Hopes for an early rate-cut by the Fed dimmed after upbeat US holiday shopping figures, sending stocks tumbling for the second day in a row.

The S&P 500 took a dive, sinking to its lowest point in a week and closing 0.56% lower at 4,739.21. The tech-heavy Nasdaq followed suit, down 0.59% to 14,855.62. Even the blue-chip Dow Jones couldn’t escape the selloff, losing 0.25% to 37,266.67.

Real estate stocks, particularly sensitive to interest rate changes, felt the brunt of the sell-off, with the S&P 500 real estate index plummeting 1.9%. This continued a recent trend, eroding some of the gains Wall Street enjoyed in the final months of 2023.

The S&P 500 still hovers about 1% below its all-time closing high set in January 2022, casting a shadow of uncertainty over the market’s future direction.

Stocks decline, bonds rise

Stocks of three major corporations – Amazon, Nvidia, and Alphabet – are experiencing a decline ranging from 0.5% to 1%, putting downward pressure on the S&P 500. The S&P 500 is being influenced by the drop in the shares of these companies. Treasury yields have surged to over 4.1%, marking the highest level for this year.

Tesla witnessed a 2% decrease in its stock value as the electric car manufacturer reduced prices for its Model Y vehicles in Germany. This decision came just a week after similar price cuts were implemented for certain models in China.

Morgan Stanley’s shares saw a 1.8% decrease following analysts’ downgrades of ratings and price targets subsequent to the bank’s fourth-quarter earnings report. Both Bank of America and Citigroup experienced a 1% decline in their respective shares.

Ford Motor observed a 1.7% drop in its stock value, while Boeing shares rose by 1.3% after the Federal Aviation Administration confirmed the completion of inspections for the initial batch of 737 MAX 9 planes.

 

What is the reason for the falls?

According to the Federal Reserve’s Beige Book report released on Wednesday, U.S. economic activity remained relatively stable from December to early January. Companies reported varied pricing pressures, and most of them indicated signs of a cooling labor market.

The data revealed that robust U.S. retail sales were supported by retailer discounts and increased auto purchases, maintaining the economy’s strength as we enter 2024.

This information has solidified the perspective that the Federal Reserve may not be able to implement rate cuts as swiftly as initially anticipated at the beginning of the year. Following the data release, traders’ expectations for a 25 basis point interest rate cut by the Fed in March declined from approximately 60% to 55%.

The S&P 500 achieved 24 new highs and five new lows, while the Nasdaq recorded 47 new highs and 219 new lows. Trading volume on U.S. exchanges was relatively light, totaling 11.8 billion shares traded, slightly below the 20-session average of 11.9 billion shares.

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