U.S. stocks fluctuated between gains and losses Thursday in a choppy session of trading, as Treasury yields continued to decline. By the end of the session, stocks were mixed, with the Dow and S&P 500 higher and the Nasdaq marginally lower.
Earlier in the session, strong earnings results from Dow component Walmart (WMT) helped lift the 30-stock index after its worst day of 2019. Prior to that, stock futures had tumbled prior to market open after China threatened ‘countermeasures’ amid its trade war with China.
All of this follows a flare-up in recession fears, sparked by a bearish signal from the bond market, which sent the Dow down 800 points on Wednesday. Each of the three major indices was off about 3% during that session.
Here were the main moves in the market, as of market close.
U.S. dollar to onshore Chinese yuan rate (CNY=X): +0.15% to 7.0326
At one point Thursday afternoon, the 10-year yield fell below 1.5%, reaching the lowest level since August 2016. The 30-year Treasury yield dipped below 2% for the first time ever, with the yield curve flattening further as investors bid up longer-duration Treasurys in bets against the shorter-term outlook. Treasury yields move inversely to their prices.
The bond market continues to be a source of interest for investors Thursday, after an inversion of the closely watched 2-year and 10-year yield curve on Wednesday stoked fears of a recession and sent markets sharply lower.
This portion of the curve has inverted before each of the last seven recessions, including before the Great Recession that officially began in December 2007.
However, not every market pundit has been convinced the 2s10s inversion represents the same flashing red signal it did in the past.
Some noted that U.S. Treasurys – and especially longer-duration notes – have been bid up by foreign investors scurrying to find low-risk returns. More than $15 trillion in global government debt trades at negative yields amid weakening economic conditions abroad, making the positive – albeit declining – yields of U.S. government debt more appealing.
Walmart earnings
Walmart beat Wall Street’s expectations on sales and profit in fiscal second-quarter 2020 results and raised its annual guidance, with the retail behemoth pointing to continued growth even as the Trump administration’s trade war and new tariffs threaten to add price pressures to retailers. The results sent shares of Walmart up 6%, padding the price-weighted Dow’s gains.
Earlier this year, Walmart warned that higher tariffs would result in price increases for consumers. However, the company said Thursday that over the past several months, it has “been able to thoughtfully manage pricing and margins with both our customers and shareholders in mind.”
Walmart CFO Brett Biggs said its updated guidance – which now calls for same-store sales growth at the high end of its previous 2.5-3% range – includes the company’s “current understanding of the timing of tariff implementation on various categories.”
Meanwhile, Chinese e-commerce giant Alibaba (BABA) also posted a strong surge in revenue and a quarterly earnings beat, as another consumer-facing company sidestepped the impacts of the ongoing trade war. The company’s results were driven by its core retail business, with its online marketplace Taobao seeing 70% of its annual active customer growth coming from less developed areas in China, even as the country grapples with slowing economic growth.
Shares of Alibaba rose 3% on the New York Stock Exchange.
At the top of the week, President Donald Trump announced that he would be delaying a 10% tariff on some goods including cell phones, video games and laptops past the original September 1 deadline, helping to lift shares of companies from Apple (AAPL) to Best Buy (BBY) earlier in the week as investors considered the delay to levies on goods for these consumer product-sellers.
“China will have to take the necessary countermeasures,” China’s Ministry of Finance said in a statement Thursday. It said the Trump administration “seriously violated the consensus” the U.S. and China reached after the G20 meeting in June by threatening to pile on additional tariffs.
Later Thursday morning, however, Foreign Ministry spokesperson Hua Chunying wrote in a subsequent statement, “We hope the U.S. can work in concert with China to implement the two Presidents' consensus that was reached in Osaka, and to work out a mutually acceptable solution through equal-footed dialogue and consultation with mutual respect.”
The statement was taken by some as a signal that China was still open to finding a middle ground with the U.S. in an eventual trade agreement.
Retail sales advanced in July, industrial output fell
U.S. retail sales rose more-than-expected in July as purchases at a broad array of retailers from furniture stores to restaurants to online merchants rose for the month. The data underscored the continued strength of the U.S. consumer, with consumption comprising 70% of domestic economic activity.
Headline retail sales climbed 0.7% month-over-month in July, the Census Bureau reported Thursday. This was better than the 0.3% expected, according to Bloomberg-compiled estimates, which would have matched June’s slightly downwardly revised rate.
Excluding automobile and gas sales, retail sales grew 0.9% for the month, better than the 0.5% pace expected. Online retailers led advances, with sales at “non-store retailers” climbing 2.8%. Sales at motor vehicle and parts dealers fell during the month, along with sales at health and personal care stores and hobby stores.
“With the rest of the world sliding into the abyss, the July retail sales figures show a resurgent U.S. consumer riding to the rescue once again,” Michael Pearce, senior U.S. economist for Capital Economics, wrote in a note Thursday.
“Even though the surge in retail sales in July was flattered by Amazon Prime Day spending and a rise in gasoline prices, there’s no denying that underlying consumer growth remains strong, which should prevent the weakness in manufacturing and business investment from dragging the U.S. economy into recession any time soon,” he added.
Meanwhile, the domestic manufacturing sector continued to show signs of softness, with industrial output unexpectedly declining in July, according to the Federal Reserve.
Industrial production fell 0.2% for the month, when an increase of 0.1% had been expected. Capacity utilization fell to 77.5% for the month, down 0.3 points from the month prior and 2.2 points from the year prior, signaling more plant equipment has been left idle during the period.
New data Thursday also showed jobless claims rose to seasonally adjusted 220,000 for the week ended August 10, up from the week prior’s upwardly revised 211,000. Consensus economists had expected 212,000 new unemployment claims during the period. This brought the 4-week moving average for initial unemployment claims up by 1,000 to 213,750.
Continuing claims also rose, with ongoing unemployment claims for the week ended August 3 climbing to 1.726 million, from a revised 1.687 million the week prior.
