Dow Rises as Retail Sales Climb, Bond Yields Hold Higher —and What Else Is Happening in the Stock Market Today

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Higher than expected inflation could prompt the Federal Reserve to raise rates sooner rather than later.

Karen Bleier/AFP/Getty Images

Stocks closed up Tuesday, driven by better-than-expected retail sales numbers mixed with a little relief that the infrastructure deal is finally law.

The Dow Jones Industrial Average finished 55 points higher, or 0.2%, after the index declined 12 points Monday to close at 36,087. The S&P 500 rose 0.4% and the Nasdaq Composite advanced 0.8%.

“All signs are pointing to a very strong holiday season for retailers and that should help keep sending stocks higher,” wrote Edward Moya, senior market analyst at Oanda. 

October retail sales rose 1.7% month over month, better than estimates for a 1.2% increase and higher than the prior reading of a 0.8% rise.

“This could serve as the vote of confidence investors needed signaling that the economy is still chugging along nicely,” wrote Mike Loewengart, managing director for investment strategy at ETrade.  

Inflation accounted for some of what Americans spent, showing that consumers have the financial strength to tolerate higher prices for now. Households have built cash savings and have been getting back to work.

“Continued strength in retail sales suggests the forces that have boosted goods demand (excess savings, changes in preferences) may remain resilient to waning fiscal stimulus and rising prices,” wrote Andrew Hollenhorst, Citigroup economist. 

The Consumer Discretionary Select Sector SPDR Exchange-Traded Fund (XLY) gained 1.5%.

The inflationary signal in the retail sales result does increase the risk that the Federal Reserve will hike interest rates, which could hurt economic growth. But the combination of the strong consumer and the easing of supply shortages is helping stocks move higher, for now.

President Joe Biden also signed the $1 trillion infrastructure spending package into law Monday, making the deal a reality after drawn-out negotiations with both parties in Congress.

More investment into roads, bridges and broadband internet means more sales for manufacturers, construction companies and semiconductor makers. Plus, the spending can add jobs and provide a small boost for the economy. 

Also Monday, a virtual meeting better Biden and China’s Xi Jinping brought good news. The leaders agreed to try to cool tensions on several issues, which investors hope would point to reduced tariffs on goods coming into both countries in the future. That would mean lower costs for U.S. importers and a Chinese market available for exporters and companies setting up operations in China. 

Overseas, Hong Kong’s Hang Seng Index rose 1.3% while in London the FTSE 100 underperformed its continental European peers, slipping 0.3%.

In cryptocurrency markets, Bitcoin was down near $60,190, according to price data from CoinDesk, with Ether prices having fallen around 9% to near $4,230.

Here are five stocks on the move:

Walmart (ticker: WMT) stock slipped 2.5% after the company reported a profit of $1.45 a share, beating estimates of $1.40 a share, on sales of $140.5 billion, above expectations for $135.6 billion.

Home Depot (HD) stock rose 5.8% after the company reported a profit of $3.92 a share, beating estimates of $340 a share, on sales of $36.8 billion, above expectations for $35 billion.

Workday (WDAY) stock gained 1.4% after getting upgraded to Buy from Neutral at UBS.

Southwest Airlines (LUV) stock dipped 3.1% after getting downgraded to Neutral from Buy at Goldman Sachs.

Tesla ( TSLA ) stock was up 4.1%. The stock has been under pressure in recent days as CEO Elon Musk has been selling down his stake.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com