Cautious Optimism Drives S&P 500 Index to New Intraday High, Global Markets Trade Sideways

Alexander Garcia
17 Sep, 2024
Miami

Benchmark indexes on Wall Street lacked direction, and retail sales were ahead of expectations. 

The S&P 500 index and the Nasdaq Composite traded in a tight range as investors reviewed the latest update on retail sales in August. 

The S&P 500 index edged lower after creating a new intraday high of 5,670.81. 

Investors are anticipating the Federal Reserve to lower rates by at least 25 basis points, and many on Wall Street are hoping for the Fed to take a bold stance and cut rates by 50 basis points. 

Despite eleven rate increases over 2022 and 2023, prices are still rising faster than the Fed's 2% target rate. 

Moreover, inflation is seeping deeper into the economy, and service sector inflation is well above 3%. 

In addition, even though the pace of price increases has slowed from a year ago, prices are rising from a higher base, hitting the consumers who are living on relatively fixed income. 

The decline in overall inflation is largely driven by the fall in goods inflation and a decline in energy prices, and very little of this could be credited to the Fed's policy and measures. 

 

August Retail Sales Surpassed Market Expectations 

Retail and food services sales increased 0.1% from the previous month in August as consumers showed resilience despite growing anxieties about the economic slowdown. 

The sales data adjusted for seasonal and calendar effects but not for inflation. 

The monthly growth slowed sharply from the revised 1.1% increase in the previous month. 

On an annual basis, retail sales growth eased to 2.1%, a slowdown in growth for the third month in a row, the U.S. Commerce Department reported Tuesday.

Retail trade sales were up 0.1% from July and up 2.0% from last year, and nonstore retail sales were up 7.8%, while sales at food services and drinking places were up 2.7%, respectively. 

Sales at gasoline stores decreased 1.2% following the fall in gasoline prices, and electronics and appliance store sales eased 0.7%. 

Meanwhile, retail sales excluding food services, auto dealers, building materials stores, and gas stations, which are used to calculate GDP, were up 0.3%, following an upwardly revised 0.4% rise in July.

The Fed's lowering of inflation will only stoke inflationary forces in the months ahead, sending another ripple of higher prices.

 

U.S. Indexes and Treasury Yields

The S&P 500 index decreased 0.3% to 5,618.74, the Nasdaq Composite fell 0.1% to 17,578.0, and the Russell 2000 index advanced 1.3% to 2,216.95. 

The yield on 2-year Treasury notes edged higher to 3.59%, 10-year Treasury notes inched down to 3.63%, and 30-year Treasury bonds inched lower to 4.0%.

WTI crude oil increased $1.73 to $71.81 a barrel, and natural gas prices edged up 3 cents to $2.41 a thermal unit.

Gold fell by $20.62 to $2,562.90 an ounce, and silver decreased by $0.11 to $30.63.

The dollar index, which weighs the US currency against a basket of foreign currencies, edged higher to 100.75.

 

U.S. Stock Movers

Microsoft Corp. jumped 2.2% to $440.71 after the software developer announced a $60 billion stock buyback plan and increased its dividend by 10.7% to 83 cents per share. 

Intel Corp. advanced 2.4% to $21.42, and the advanced chipmaker said it plans to create a new entity for its foundry business, allowing the unit to raise its own capital. 

Hewlett Packard Enterprise jumped 5.5% to $18.17 after Bank of America upgraded the stock to "buy" from "neutral," citing several catalysts for the company's server demand. 

 

European Markets Advanced, German Investor Morale Dropped to 11-Month Low 

European markets advanced for the second consecutive day in a row and extended weekly gains ahead of key monetary policy decisions. 

Benchmark indexes in London, Paris, and Frankfurt advanced ahead of rate decisions from the U.S. Federal Reserve Bank, the Bank of England, the Norges Bank, and the Bank of Japan. 

Investors are hoping that the Federal Reserve will deliver a widely anticipated rate cut of at least 25 basis points, but the central banks of the U.K., Norway, and Japan are likely to hold rates steady. 

Consumer price inflation in the U.S. has slowed over the last eighteen months, but that decline is largely reflecting lower energy prices. 

Prices are still rising at a faster pace than the Fed's target rate of 2% and from a higher base, stretching consumer budgets for most families. 

Moreover, the service sector inflation is still above 4%, and many small and medium-sized businesses are still looking to pass on higher operating costs to consumers, which is likely to keep inflation at an elevated pace for several more months. 

Closer to home, the ZEW Indicator of Economic Sentiment for Germany plunged to 3.6 in September from 19.2 in August, the Center for European Economic Research announced Tuesday. 

The investor morale indicator declined for the third month in a row and fell to the lowest level since October 2023. 

Investors are widely discounting the hope for an economic rebound in Germany amid rising cost of living, elevated interest rates, and weakening labor market conditions. 

 

Europe Indexes and Yields

The DAX index increased by 0.5% to 18,730.69; the CAC-40 index rose by 0.5% to 7,487.42; and the FTSE 100 index increased by 0.4% to 8,309.56. 

The yield on 10-year German bonds edged lower to 2.10%, French bonds inched lower to 2.82%, the UK gilts edged down to 3.74%, and Italian bonds decreased to 3.44%.

The euro edged up to $1.11; the British pound inched higher to $1.32; and the U.S. dollar weakened to 84.46 Swiss cents.

Brent crude decreased $0.22 to $72.52 a barrel, and the Dutch TTF natural gas rose by €0.47 to €34.78 per MWh. 

 

Europe Stock Movers

Kingfisher plc increased 7.7% to 310.90 pence after the UK-based home improvement retailer raised the lower end of its fiscal 2025 profit estimate. 

Sales in the first half declined 1.8% to £6.7 billion from £6.9 billion, pre-tax income increased 2.3% to £324 million from £317 million, and earnings per share advanced 3.9% to 12.8 pence from 12.4 pence a year ago. 

The company blamed the sales weakness to a decline in sales of large tickets and unusual weather conditions. 

The retailer also lifted its annual profit-before-tax range to between £510 million and £550 million from the previous estimate between £490 million and £550 million. 

Barry Callebaut increased 6.9% to CHF 1,557.0 after Barclays upgraded the stock to "overweight" from "underweight," citing a decline in cocoa prices and the company's focus on improving its operating costs. 

The company has closed underperforming plants in Italy, Malaysia, and Germany and expressed confidence that it is on track to achieve its $250 million cost-cutting target by the end of fiscal year 2027. 

Essentra PLC plunged 18.2% to 136.80 pence after the UK-based manufacturing company lowered its annual outlook in the current fiscal year, citing market challenges. 

The company revised its annual profit estimate to between £40 million and £42 million, citing adverse market conditions and a negative foreign exchange impact of £2 million. 

The company reversed its previous outlook of an improvement in volume in the expectations of a rebound in demand in Europe, including Turkey. 

However, sales have lagged the company's expectations in the second half in the U.S. and APAC region. 

 

Japan Indexes Plunged Nearly 2% Ahead of Rate Decisions 

Benchmark indexes in Tokyo faced selling pressure ahead of the monetary policy decisions by the Bank of Japan on Friday. 

The Nikkei 225 stock average declined as much as 2% and the Topix index fell as much as 1.8%, and losses in tech stocks contributed to the market weakness. 

Investors turned cautious after a three-day holiday and reacted to the weak tech stocks on Wall Street ahead of rate decisions this week by the Federal Reserve Bank, the Bank of England, the Norges Bank, and the Bank of Japan. 

The Bank of Japan is widely anticipated to hold its interest rate range, but investors are looking forward to the central bank's rate outlook and the timing of future rate increases. 

The yield on 10-year Japanese bonds fell to a one-year low of 0.83%, ahead of the central bank's rate decisions. 

The Japanese yen traded at 140.34 against the U.S. dollar in Tokyo as investors turned cautious. 

Investors are also hoping that the Federal Reserve Bank will lower its key lending rates by at least 25 basis points, shrinking the gap with rates in Japan. 

 

Japan Stock Movers 

The Nikkei 225 stock average decreased 1% to 36,180.30, and the Topix index declined 0.7% to 2,554.52. 

Tech stocks led the losers in Tokyo following sharp losses in overnight trading in New York after investors worried that the Apple iPhone 16 sales may lag expectations. 

Tokyo Electron decreased 5.2% to ¥22,440.0, Advantest dropped 5.6% to ¥6,016.0, and Screen Holdings declined 2.9% to ¥9,577.0. 

Retailers were also among the leading decliners after the yen continued to advance. 

Seven & I Holdings declined 0.4% to ¥2,158.50, Isetan Mitsukoshi dropped 3% to ¥2,196.50, and Fast Retailing added 0.4% to ¥44,070.0. 

Banks accelerated losses for the second session in a row ahead of the Bank of Japan's rate decisions on Friday. 

Mizuho Financial Group declined 2.5% to ¥2,746.50, Sumitomo Mitsui decreased 2.6% to ¥8,750.0, and Mitsubishi UFJ dropped 2.2% to ¥1,419.0. 

 

Property Stocks Rebound In Hong Kong, Midea Group IPO Sizzles On Debut 

Stocks in Hong Kong advanced for the fourth day in a row, and property stocks led the gainers. 

The Hang Seng index soared more than 1.5%, and the financial markets in mainland China are set to resume trading on Wednesday after a 4-day weekend. 

Stocks advanced ahead of the possible rate cut by the U.S. Federal Reserve on Wednesday, and investors increased their bets that the central bank is more likely to cut rates by 50 basis points. 

Amid widespread speculation, investors are hoping that the Federal Reserve is expected to signal that the central bank is prepared to lower rates by as much as 100 basis points by the end of 2024. 

Rate cuts in the U.S. also automatically lower interest rates in Hong Kong to maintain the city's currency peg with the U.S. dollar. 

Moreover, the Bank of England is scheduled to hold its rate steady on Thursday, and the Bank of Japan is likely to keep its interest rate range unrevised on Friday. 

Market sentiment in Hong Kong was also boosted by the expectation that the Chinese government will provide additional stimulus following weak economic data over the weekend. 

 

China Stock Movers 

The Hang Seng index added 1.6% to 17,696.54, and financial markets in mainland China were closed for a holiday. 

Midea Group increased 10% to HK $59.30, and the Foshan-based electric appliance and household consumer electronics maker raised HK $31 billion in an offering last week. 

The company priced its Hong Kong initial public offering at HK $54.80 per share and raised $3.98 billion in the largest offering in three years. 

The company is likely to exercise its option to sell additional shares amid strong interest from international investors and increase its offering size to $4.6 billion. 

The company is the largest maker of white goods, and the appliance maker also owns Germany-based industrial robot company Kuka. 

The company's stock in Hong Kong traded at a 20% discount to its closing price in Shenzhen at ¥63.51.

Tech stocks advanced in Hong Kong trading, tracking gains on Wall Street in overnight trading. 

Alibaba Group gained 1.6% to HK $82.95, Tencent Holdings jumped 0.9% to HK $381.20, and Baidu gained 1% to HK $83.50. 

Henderson Land Development increased 3.2% to HK $24.55, Sun Hung Kai Properties gained 2.2% to HK $80.80, and CK Asset Holdings gained 4.4% to HK $32.30.