Stocks ended mixed on Thursday, as investors assessed the implications of stronger-than-expected retail sales.
Retail sales rose 0.7% in August, better than expectations for a decline of 0.8%. July retail sales were revised lower, however, to a decline of 1.8%. Meanwhile, initial jobless claims rose by 20,000 to 332,000 in the latest week. Economists had expected 320,000 claims.
The Dow Jones Industrial Average dropped 63 points, or 0.2%, to close at 34,751.32, after the index surged 236 points Wednesday. The S&P 500 fell 0.2%, while the Nasdaq Composite advanced 0.1%. In the final hour of trading, the S&P 500 and Dow were holding gains before they closed in the red for the day.
The 10-year Treasury yield rose to 1.34%.
The strong retail-sales result comes even as Covid-19 cases had been ticking up, and product shortages have been creating inflation, which could make consumers less willing to spend. Excluding the automotive sector, sales climbed 2% in August, above forecasts for a 0.1% decline.
“While some components of retail sales were largely as we had expected in August, surprising strength in other components is an encouraging story for continued strong demand,” wrote Andrew Hollenhorst, Citigroup economist. “This is despite some recent concerns that the spread of the Delta variant would cause a slowdown in activity.”
This also comes as companies have been cutting sales guidance for the current quarter, as they are largely unable to access the supplies needed to meet demand, making the retail-sales result a welcome sight for investors.
Consumer-facing stocks fared relatively well. The Invesco S&P 500 Equal Weight Consumer Discretionary Exchange-Traded Fund (RCD) rose 0.5%.
Bank stocks performed relatively well before giving up early gains, with the SPDR S&P Bank ETF (KBE) ultimately falling 0.5%. The yield curve, the difference between long-dated bond yields and short-term interest rates, expanded. Banks see better profitability when they can borrow at lower short-term rates and lend at higher long-term rates.
Still, investors need to see more positive economic data in the coming weeks before it is safe to assume that the supply shortages are becoming less problematic, wrote Tom Essaye, founder of Sevens Report Research.
Investors are also trying to gauge when the Federal Reserve will lift interest rates. Strong economic data only embolden the case for a rate hike sooner rather than later.
Consumers spent a lot of money in August, and the retail report suggests they were spending on goods and not so much on services, as virus infections spread. Spending on home furnishings, for example, rose 3.4% month-over-month, while spending at food and drink service outlets was flat. “This retail-sales report really feels like a ‘delta’ report,” wrote RBC Capital Markets economist Tom Porcelli.
Overall, as investors weigh impediments to economic growth against positive developments, such as Thursday’s retail sales result, market movements have been small. However, the largest S&P 500 gain since Aug. 27 was 0.85% on Wednesday, according to Instinet data.
Overseas, Hong Kong’s Hang Seng Index fell 1.5% as the woes of highly indebted Chinese property developer Evergrande continued to weigh on markets. The pan-European Stoxx 600 was 0.4% higher, buoyed by U.S. sentiment and led higher by travel stocks.
Here are 12 stocks on the move Thursday:
Embattled Chinese property giant Evergrande (3333.H.K.) slipped 6.5%, bringing its year-to-date decline to 81%. The latest update as the company moves closer to restructuring was that its main unit moved to suspend corporate bond trading after a credit downgrade.
The regulatory crackdown in Macau—the world’s largest gaming center—continues to hurt, with Wynn Macau (1128.H.K.) down 4.7% and China Sands (1928.H.K.) 8%. Shares in the two companies’ parents— Wynn Resorts (WYNN) and Las Vegas Sands (LVS)—were down between 1% and 2% in U.S. trading.
Wynn Resorts stock was downgraded to Neutral from Overweight at JPMorgan. Shares are now down 18% from Monday’s close, just before news of more potential regulation in China came out. Positively, Goldman Sachs analysts see most of the potential challenges as already reflected in the stock.
Cisco Systems (CSCO) stock fell 0.4% even after Credit Suisse upgraded it to Outperform from Neutral. This comes after the stock fell 0.5% Wednesday, when the company announced it is expecting 5% to 7% revenue and earnings growth through though 2025. Analysts had been forecasting a 6.7% compounded annual growth rate of earnings per share from 2021 to 2025, according to FactSet consensus estimates. The company added that high component costs will limit gross-margin expansion and that the company is investing in new opportunities.
Investors are monitoring profitability trends for Cisco. “Growth targets, particularly on software/subscription, are compelling, but not without costs, limiting earnings leverage and keeping us equal-weight,” wrote Morgan Stanley analyst Meta Marshall.
Shares of media group Lagardère (MMB.France), which owns Paris Match magazine and other properties, jumped 19.5% after industry giant Vivendi (VIV.France) moved to increase its stake in the company.
Budget European airline Ryanair (RYA.U.K.) shares lifted off 7.9% after raising its long-term traffic forecast.
DoorDash (DASH) stock rose 5.6% after an upgrade to Buy from Neutral at Bank of America Securities. The analysts wrote that the company can reach $15 billion in annual sales by 2026, up from $4.7 billion in 2021, adding that the percentage of grocery, alcohol and convenience sales represented by online sales can double from 2021 to 2026. Analysts polled by FactSet see 2026 revenue coming in at just $12.6 billion.
Anheuser-Busch InBev SA (BUD) stock rose 0.4% after an upgrade to Buy from Hold at Deutsche Bank.
Beyond Meat (BYND) stock fell 2.3% after a downgrade to Underweight from Neutral at Piper Sandler.
Fisker (FSR) stock fell 4.5% after a downgrade to Neutral from Buy at Bank of America.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
