Dow pulls back from records as sentiment survey shows Americans prepping for highest inflation since 2008

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MARKET SNAPSHOT

U.S. stock indexes were trading lower midday Friday, but off the lows, as data showing a fall consumer sentiment overshadowed an earlier report on a sharp rise in retail sales, while corporate earnings reports remained mixed.

Video: Mid-month consumer sentiment comes in at 80.8 in July (CNBC)

Mid-month consumer sentiment comes in at 80.8 in July
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Federal Reserve Chairman Jerome Powell this week again reassured markets that a rise inflation was likely to be temporary, but higher prices may be behind the fall in consumer sentiment.

How are stock benchmarks trading?

  • The Dow Jones Industrial Average 55 points, or 0.2%, lower at 34,931, off its lows of the session, reached after the blue-chip benchmark touched an intraday high near a record at 35,091.56.
  • The S&P 500 index was off 6 points at 4,354, a drop of 0.1%, weighed by a 1.2% decline in energy sector and a 0.6% in financials
  • The Nasdaq Composite Index traded 25 points, or 0.2%, lower at 14,517.

On Thursday, the Dow rose 53.79 points or 0.15% today to 34,987.02, the S&P 500 fell 14.27 points, or 0.33%, to 4,360.03, while the Nasdaq Composite Index closed 101.82 points lower, or 0.70%, at 14,543.13.

For the week, the Dow is currently negative for the week, threatening to snap a string of weekly gains at four; the S&P 500 is headed for a weekly decline of 0.4%, while the Nasdaq is looking at a weekly decline of 1.1%, the first such decline in four weeks. The small-capitalization Russell 2000 index was on track for a 4% drop for the week, which would mark its third straight loss.

What’s driving the market?

A solid start to second-quarter earnings reports and strong June retail sales was being momentarily overshadowed by evidence of flagging sentiment, analysts said.

“Consumer sentiment’s sharp decline seems to be overpowering strong earnings and the rise in retail sales,” wrote Mike Loewengart, managing director, investment strategy at E-Trade Financial, in emailed comments to MarketWatch.

A preliminary reading of the University of Michigan’s index of consumer sentiment fell to 80.8 in July from a final reading of 85.5 in June, notching the measure’s lowest level since February. Economists expected a reading of 86.3, according to a survey by the Wall Street Journal.

The survey shows that consumers are preparing for a 4.8% increase in the cost of living this year, the highest level since 2008.

“Inflation has put added pressure on living standards, especially on lower and middle income households, and caused postponement of large discretionary purchases, especially among upper income households,” Richard Curtin, the University of Michigan survey’s chief economist, said.

Meanwhile, sales at U.S. retailers increased 0.6% last month, compared with a forecast for a 0.4% decline. Excluding autos, retail sales advanced 1.3%, almost three times as much as Wall Street expected. But June retail sales data may have done little to quell the escalating concerns around inflation.

“Despite Powell’s continued messaging on inflation, concerns are clearly growing – especially around the rising prices of homes and cars – and contributing to the rollercoaster of a market we are currently seeing,” E-Trade’s Loewengart said.

Investors have also been digesting what has been mostly upbeat second-quarter corporate earnings results but the data has been mixed and market participants are growing increasingly unsure about the post-COVID outlook.

“This week’s earnings reports have by and large been positive but attention is now shifting to what comes next in terms of the outlook, and here the picture is less clear,” wrote Michael Hewson, chief market analyst at CMC Markets U.K. in research note.

“There was a great deal of optimism over the summer reopening, however as we look ahead to the rest of the year and look at how Delta variant infections are rising some of that optimism prompting the question as to where we go next for Q3 earnings expectations,” the analyst wrote.

Read: A ‘robust’ U.S. economy is strengthening, Fed’s Beige Book finds, but it is grappling with big shortages and higher inflation

Meanwhile, the spread of the more transmissible delta coronavirus variant has fueled jitters on Wall Street but the path of least resistance continues to be higher for stocks and lower for Treasury yields, with the 10-year benchmark briefly slipping below 1.30% on Thursday.

The slide in yields suggests that fixed-income investors harbor some doubts about economic growth in the wake of the pandemic or also share Powell’s view that inflation will be short-lived.

Separately, the U.S. President Joe Biden on Friday will join Pacific Rim leaders, including China’s Xi Jinping and Russia’s Vladimir Putin in a virtual meeting to develop strategies to help economies rebound from the resurgent COVID-19 pandemic.

Read: Inflation is surging. How high will it go? Check out MarketWatch’s new tracker.

Which companies are in focus?

  • Charles Schwab Corp. SCHW reported second-quarter earnings Friday that showed profit falling below estimates, while revenue beat, as it opened 1.7 million new brokerage accounts, exceeding 1 million for a third straight quarter. Shares of the company were down over 2%.
  • Shares of GameStop CorpGME rose 2.8% Friday, to extend a bounce that started late in the previous session, and them on track to snap a five-day losing streak.
  • Kansas City Southern KSU said Friday it swung to a second-quarter net loss, as a result of more than $700 million in merger costs, while also reporting an adjusted profit and revenue that came up short of expectations. Shares were down 0.5%.
  • Bristol-Myers Squibb Co. BMY said Friday a late-stage study of a treatment for head and neck cancer failed to meet its main goals. Shares were mostly flat.
  • U.S.-listed Chinese ride-hailing company Didi Global  tumbled 3% after state security and police officials were sent to the company’s offices Friday as part of a cybersecurity investigation, AP reported.
  • Intel  was in focus after The Wall Street Journal reported that the semiconductor giant was exploring a deal to acquire chip maker GlobalFoundries for around $30 billion. Shares of Intel were up 0.8%.
  • Moderna Inc. a biotechnology company catapulted to fame after it produced a highly effective COVID-19 vaccine, is set to join the S&P 500 index, replacing Alexion Pharmaceuticals Inc. Shares of Moderna were up 5.4% and Alexion was off 0.5%.

How are other assets faring?

  • The yield on the 10-year Treasury note was up 3 basis points to 1.33%. Yields and bond prices move in opposite directions.
  • The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six major rivals, was up less than 0.1%.
  • Oil futures rose, with the U.S. benchmark CL00 up 0.3% but down more than 3% for the week, while gold futures GC00 slipped 0.1% to $1,826.30 an ounce, but was headed for a weekly rise.
  • In European equities, the Stoxx Europe 600 SXXP closed 0.3% lower and finished 0.6% lower for the week, and London’s FTSE 100 UKX ended less than 0.1% lower, contributing to a 1.6% weekly skid for the bourse.
  • In Asia, the Shanghai Composite SHCOMP fell 0.7% but booked a 0.4% weekly gain, the Hang Seng Index HSI advanced 0.03% but logged a 2.4% weekly rise, and Japan’s Nikkei 225 NIK closed 1% lower but notched a 0.2% gain for the week.
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