Well, buckle up, because Wall Street just hit the brakes! The three major indices on Wall Street decided to paint the town red after the release of data showing a jump in U.S. retail sales that exceeded expectations. Surprisingly, this is causing a bit of a rethink about the monetary policy of the U.S. central bank, The Federal Reserve.
Wall Street in the Red Zone
So, last night, all three benchmark indices on Wall Street decided to go for the red look. Opening the show, the Dow Jones Industrial Average dropped by 79.27 points, or 0.21%, making its way to 37,281.85. The Nasdaq Composite wasn’t far behind, down 129.58 points, equivalent to 0.86%, landing at 14,814.77. As for the S&P 500, it took a dip of 26.85 points, or 0.56%, settling at 4,739.13.
This red zone opening is just an extension of the downward trend we’ve been seeing since yesterday. The culprit? Well, it’s the unexpected rise in U.S. retail sales.
December Retail Sales Surprise
According to Refinitiv’s data, during the Wednesday night market opening on January 17, 2024, the Dow Jones Industrial Average took a hit, shedding 79.27 points or 0.21% to reach 37,281.85. Meanwhile, the Nasdaq Composite dropped by 129.58 points or 0.86% to land at 14,814.77, and the S&P 500 slipped by 26.85 points or 0.56% to hit 4,739.13.
The opening in the red zone just extends the weakening trend that’s been happening since yesterday. This is all because the U.S. retail sales numbers didn’t quite match the predictions.
Retail Sales Up, Expectations Down
Based on the Department of Commerce’s report, retail sales in December 2023 jumped by 0.6% month-to-month. This figure missed the consensus, with the Reuters survey estimating only a 0.4% increase.
This surge in retail sales is connected to the expected heating up of inflation. As a result, market players are now less gung-ho about the Federal Reserve cutting interest rates at the upcoming March meeting – the probability dropped to 55%. Just a few days ago, it was dancing around the 60% mark, according to data from the FedWatch Tool by CME Group.
Fed Policy Uncertainty
In sync with the prospects of a more extended Federal Reserve policy easing, Stuart Cole, chief economist at Equiti Capital in London, expressed some doubt. He mentioned that with the release of hot economic data, the Fed might hesitate.
“For The Fed, those numbers will cast further doubt on the likelihood of the first interest rate cut in March. The probability of such a cut diminishes with each data release we get,” said Stuart.
Bond Yields on the Rise
After this retail sales revelation, the yield on the 10-year U.S. benchmark bonds was seen strengthening to over 4%. This uptick indicates that investors are letting go of U.S. bonds because their prices are dropping.
As investors release bonds, the circulation of the U.S. dollar increases, boosting the value of the U.S. Dollar Index (DXY). Yesterday, DXY saw a nearly 1% rise, and tonight, as of 9:51 PM, DXY is back up by 0.26% to 103.61.
Stronger Dollar, Weaker Stocks
A stronger U.S. dollar tends to put a damper on the stock market. Before the market opened today, some big-cap stocks were already showing signs of correction. Take Alphabet (GOOG), for instance, down by 0.6%. Then there’s Amazon (AMZN) and the company behind Instagram (META), both taking a dip of 0.9%.
So, there you have it – retail sales skyrocketed, Wall Street got the jitters, and the market rollercoaster just keeps on rolling!
