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U.S. stocks were lower on Friday even after a better-than-expected retail sales report. Markets were also keeping close watch over developments around the fast-spreading Delta variant of the coronavirus that causes Covid-19.
Retail sales for June rose 0.6% from May, while economists had expected a decline of 0.4%. Sales had fallen 0.7% sequentially in May. Investors want affirmation that economic growth isn’t being meaningfully held back by supply shortages. Excluding autos, sales were up 1.3%.
By midmorning, the
fell 126 points, or 0.4%, while the
fell 0.3% and the
declined 0.2%. The indexes were gaining just after the opening bell, before they began retreating.
One contributing factor to the market weakness was that, beneath the surface, retail sales weren’t so impressive. Real spending, which strips out inflation and only accounts for sales volumes, fell 1.3% over May’s number, according to Mizuho economists. “The implication for real GDP is a sharp deceleration in real goods consumption,” writes Alex Pelle, U.S. economist. “Growth momentum likely peaked in the March-April period.”
The bond market was signaling a similar message. The yield curve flattened, meaning longer-dated bond yields were not moving much, while short-term yields rose, indicating the market envisions slower long-term economic growth and Federal Reserve interest rate hikes in the next year or two. The 10-year Treasury yield was little changed, at 1.31%, while the 2-year yield rose to 0.25% from 0.23%. “What the market is telling you with this big curve flattener is if the Fed has to step in sooner, then we’re not going to have robust growth in the longer term.”
The
fell 0.9% after the Bank of Japan trimmed its growth forecast for the year to 3.8% from 4%. The central bank also pledged to provide zero-rate loans to commercial banks to help companies fund climate-change projects. Much of the Asian region was steeped in red as concerns over spreading Covid-19 cases weighed, with China’s
closing down 1.1%.
U.S. President
Joe Biden
was on Friday due to join Pacific Rim leaders, including his Chinese counterpart
Xi Jinping
and Russian President
Vladimir Putin,
in a virtual meeting to develop strategies to help economies rebound from the resurgent Covid-19 pandemic.
Rising cases across the U.S. as well have forced officials in the country’s biggest county of Los Angeles to reinstate an indoor mask mandate even for the fully vaccinated, which will come into effect as of Saturday.
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European stock indexes were modestly lower as Germany, the euro-area’s biggest economy, is struggling to cope with devastating flooding in the western part of the country that has left more than 80 dead and hundreds missing. The flooding has affected the neighboring countries of Belgium and Luxembourg as well.
Shares of
(ticker: MRNA) were up 10.8% after news late Thursday that the biotech, which has produced a highly effective Covid-19 vaccine, will join the S&P 500 index, replacing
(ALXN) on Jul. 21.
Among other stocks in focus, shares of Intel (INTC) rose 0.5%. The heavily weighted semiconductor group is reportedly in talks to buy contract chip maker Globalfoundries for $30 billion, according to The Wall Street Journal.
Shares of Ericsson (ERIC) dropped 9%. The telecommunications-equipment company announced an $8.3 billion multiyear 5G deal with Verizon Communications and posted a forecast-beating, second-quarter net profit that beat expectations, but reported weaker sales in China.
Ericsson previously warned that Sweden’s ban on certain Chinese gear could result in some retaliation, and said it is now “prudent to forecast a materially lower market share in mainland China for networks and digital services.”
(AA) stock fell 4.3% after the aluminum producer reported a profit of $1.49 a share, beating estimates for $1.29 a share. Sales were $2.83 billion, above expectations for $2.65 billion.
(CMI) stock fell 0.5% even after getting upgraded to Outperform from Market Perform at Cowen.
(OLN) stock fell 1% even after getting upgraded to Buy from Neutral.
(ZTS) stock dropped 1.1%. Raymond James downgraded the shares to Market Perform from Outperform.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
