Stocks Advance After Surprise in US Retail Sales: Markets Wrap

(Bloomberg) — Stocks hit all-time highs after solid retail sales suggested the economy’s main driver is still holding up as inflation recedes and the Federal Reserve nears a start to rate cuts.

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All major equity benchmarks rose, with the S&P 500 heading toward its 38th record this year. Traders also waded through financial earnings. Bank of America Corp. rose after saying net interest income would climb by the end of the year. Morgan Stanley fell as results from its key wealth business fell short of estimates. Treasury 10-year yields pared declines after the economic report.

“To see a strong retail sales print is healthy — even if that causes some short-term volatility in the rate-cut outlook,” said Bret Kenwell at eToro. “It’s far better to see the Fed eventually lower rates on falling inflation than to see the Fed cutting rates to bolster a weakened economy.”

The S&P 500 rose 0.3%. The Russell 2000 of small caps gained 2%. Amazon.com Inc. kicks off its Prime Day event, which is expected to show robust growth.

To Ian Lyngen at BMO Capital Markets, it was a “bond-bearish” round of retail sales data, but “there isn’t anything in the release that would shift expectations for a September Fed cut.”

“Retail spending in June was expected to confirm signs of an economic slowdown, but instead has breathed new life into the argument that Fed officials don’t need to worry about a sluggish real economy yet,” said Mark Streiber at FHN Financial.

US retail sales, excluding the impact of a cyberattack on auto dealerships, rose in June by the most in three months, a sign consumers regained their footing at the end of the second quarter. Total retail sales were unchanged, restrained by a 2% slide in receipts at auto dealers. The figures aren’t adjusted for inflation.

“This report doesn’t negate expectations that the Fed will cut rates at its September meeting, unless of course inflation-related data releases indicate an uptick in prices,” said Quincy Krosby at LPL Financial.

Fed Chair Jerome Powell said Monday that second-quarter economic data has provided policymakers greater confidence that inflation is heading down to the central bank’s 2% goal, possibly paving the way for near-term interest-rate cuts.

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The resiliency of the stock market — thanks to improving corporate earnings and torrid demand for companies linked to artificial intelligence — has been underpinned by optimism that the economy has withstood the worst of the Fed’s policy tightening following the highest interest rates in more than two decades.

The S&P 500 Index is barreling toward its longest stretch without a 2% decline since the onset of the global financial crisis in 2007.

Corporate Highlights:

• Charles Schwab Corp. reported that fewer clients opened new brokerage accounts with the investing giant than analysts expected, sending shares of the company down in early trading.

• PNC Financial Services Group Inc. notched its first increase in net interest income since the end of 2022, setting itself up for what it expects to be a record year of NII growth in 2025.

• Microsoft Corp.’s investment into Inflection AI will get a full-blown UK antitrust probe, after the watchdog said it needed to take a closer look at the hiring of former employees from the artificial intelligence startup.

• Philip Morris International Inc. is expanding production of Zyn in the US as the popular oral nicotine pouch becomes increasingly hard to find because of soaring demand.

• Starboard Value became the third activist investor this year to take a stake in Match Group Inc., the owner of the dating app Tinder whose paying customer base has shrunk for six straight quarters.

• Deutsche Bank AG is encouraging its investment bankers to be more selective in pitching for mergers and acquisitions mandates and focus on more profitable deals, people with knowledge of the matter said, following a recent hiring spree at the firm.

• Hugo Boss slashed its profit guidance for the year, citing weakness in key markets such as China and the UK.

Key events this week:

• Eurozone CPI, Wednesday

• US housing starts, industrial production, Wednesday

• Fed Beige Book, Wednesday

• Fed’s Thomas Barkin speaks, Wednesday

• ECB rate decision, Thursday

• US initial jobless claims, Philadelphia Fed manufacturing, Conference Board LEI, Thursday

• Fed’s Mary Daly, Lorie Logan and Michelle Bowman speak, Thursday

• Fed’s John Williams, Raphael Bostic speak, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.3% as of 9:57 a.m. New York time

• The Nasdaq 100 was little changed

• The Dow Jones Industrial Average rose 1%

• The Stoxx Europe 600 fell 0.5%

• The MSCI World Index was little changed

• The Russell 2000 Index rose 1.9%

Currencies

• The Bloomberg Dollar Spot Index rose 0.1%

• The euro fell 0.1% to $1.0881

• The British pound fell 0.1% to $1.2954

• The Japanese yen fell 0.4% to 158.64 per dollar

Cryptocurrencies

• Bitcoin was little changed at $63,761.25

• Ether fell 0.8% to $3,408.12

Bonds

• The yield on 10-year Treasuries declined two basis points to 4.21%

• Germany’s 10-year yield declined three basis points to 2.44%

• Britain’s 10-year yield declined three basis points to 4.07%

Commodities

• West Texas Intermediate crude fell 1.5% to $80.66 a barrel

• Spot gold rose 0.8% to $2,442.18 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Jessica Menton.

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