U.S. stocks traded lower Wednesday morning after economic reports pointed to a sharp rise in retail sales and a healthy industrial production, but also to signs of rising inflation which is boosting bond yields.
How are stock benchmarks performing?
The Dow Jones Industrial Average
was 72 points, 0.2%, lower, near 31,451.
The S&P 500 index
fell 28 points to reach 3,905, down 0.7%.
The Nasdaq Composite
tumbled 237 points, or 1.7%, to trade near 13,810.
On Tuesday, the Dow ended at a record, but the S&P 500 and the Nasdaq Composite indexes snapped a two-day string of gains to end lower.
What’s driving the market?
U.S. retail sales figures for January offered the latest read on the health of the consumer amid the coronavirus pandemic, with sales crushing estimates and rising 5.3% for the month, after a 1% decline in December as COVID cases spiked.
A separate report on industrial production from the Federal Reserve showed a rise of 0.9% in January, also trouncing economist forecasts of a 0.5% gain. Businesses restocked their inventories more than expected in December, but a reading on home-builder confidence was stronger than expected.
However, the producer-price index jumped by 1.3% in January, the largest increase since the index underwent a major overhaul in 2009 and service prices were included in the report. The rate of wholesale inflation in the past 12 months climbed to 1.7% from 0.8% at the end of 2020—not far from the pre-pandemic level of 2%.
The data are helping to boost U.S. bond yields, as investors also look ahead to the prospect of more fiscal stimulus from Congress and declining coronavirus cases. On Tuesday, the 10-Treasury note
hit a yield near 1.30%, its highest level since Feb. 26, according to Dow Jones Market Data.
“The retail sales numbers were stunning, and PPI was very very strong too, but we’ve had a series of down months before that,” said Peter Andersen, founder of Boston-based Andersen Capital Management. “It’s just too hard to extrapolate based on one month. It could show pent-up demand but the supply demand dynamic right now is still too hard to filter. I’m thinking it could show what the pent-up demand is once we get through the vaccine roll-out. We’ll be off to the races.”
In an interview with MarketWatch, Andersen called himself “really shocked at the attention that investors are giving to shiny items like Bitcoin, space exploration, SPACs.” The market could use a little direction from more news about vaccine progress, he said, but overall, other than a few frothy areas, isn’t worrisome.
Greg Marcus, managing director, UBS Private Wealth Management, thinks the explanation for this week’s choppiness is a bit more straightforward: “Even though rates are picking up, they’re still low,” he said. “Markets came a little too far too fast.”
Once the vaccine process hits its stride, Marcus told MarketWatch, the rest of the year “could feel like New Year’s Eve every day. I still believe that there’s so much money on the sidelines and consumers have saved so much money and they’re waiting to go spend money again.” He’s bullish on small- and mid-cap stocks, as well as emerging-market names.
“Markets are showing small losses today as mild concerns about rising government bond yields have encouraged some traders to trim their exposure to equities,” said David Madden, market analyst at CMC Markets UK.
“Recently, the mood in global equity markets has been very bullish as multiyear highs and in some cases, all-time highs were set,” Madden wrote. “Buying was being fueled by the hopes of more stimulus spending by the Biden government, also playing into the mix was the view that successful vaccine roll-outs should help re-open economies, and in turn, economic activity will rise later this year,” referring to President Joe Biden’s $1.9 trillion COVID aid proposal.
Meanwhile, frigid weather is posing problems in much of the U.S., including Texas, leaving millions without power and nearly 75% of the Lower 48 states under snow cover, the Wall Street Journal wrote, citing the National Oceanic and Atmospheric Administration’s National Snow Analysis daily report. The freezing weather cut U.S. oil…