Led by the health care and tech sectors, U.S. stocks were broadly higher on Wednesday despite a weaker than expected July retail sales report.
Prices were higher from the start, led by NASDAQ, which closed with an even 1% gain, followed by the S&P 500, which rose 0.7%, and the Dow, which gained 0.6%. All 10 S&P sectors were higher, led by health and tech, which both rose over 1.1%. NASDAQ was led by biotech stocks, which rose more than 2%, health care (+1.7%), and computer and internet stocks (both +1.3%). Intel (+2.9%) was the biggest mover on the positive side for the Dow, where Walmart (-0.3%) was the only loser.
Retail sales for July were unchanged from June, the weakest level since January and possibly a harbinger for weak third quarter growth. The disappointing report, which failed to meet the consensus estimate of a 0.2% rise, which would have matched the prior month’s increase, was mainly due to a 0.2% drop in auto sales. Outside autos, retail sales were up a still disappointing 0.1%, down from the previous month’s 0.4% increase. Excluding both autos and gasoline, sales were up only 0.1%, down from the 0.6% June increase and below the 0.3% forecast.
But U.S. Treasury securities prices were higher in response to the report. The price of the 10-year note rose about ¼ point in price to lower its yield three basis points to 2.42%. The government sold $24 billion of new 10-year notes at a yield of 2.439%, their lowest rate at auction in over a year and 15 bps lower than at the July sale; by way of comparison, the Treasury sold similar notes back in January at a 3% yield. Permanent investors bought 62% of the deal, which attracted a bid-cover ratio of 2.83 times the size of the sale.
European stocks rebounded on Wednesday following Tuesday’s losses. Germany’s DAX index rebounded 1.4%, more than offsetting the previous day’s 1.2% drop. German 10-year bunds rose more than ¼ point in price to reduce their yield to 1.03%, near a record low. The country sold new 10-year bunds at a rate of 1.08%, the lowest auction yield on record, according to Bloomberg, and down from 1.20% at last month’s auction. Germany’s finance ministry also announced that its net new borrowing next year will drop to zero from 6.5 billion euros this year, adding more scarcity to the securities and thus possibly even lower rates. Elsewhere in Europe, French stocks gained 0.8% while Spanish and Italian stocks rose 0.6% each. The Stoxx Europe 600 closed up 0.4%.
Asian stocks kept their winning streak alive this week despite a weak report on the Japanese economy. GDP dropped 1.7% in the second quarter, 6.8% on an annualized basis, versus a 6.1% annualized rise in Q1, the biggest drop since the March 2011 earthquake. The decline, however, wasn’t unexpected, as a big national sales tax hike took effect April 1, which discouraged spending. Investors shrugged off the news, as the Nikkei 225 rose 0.4%. Hong Kong’s Hang Seng index rose twice that while India’s Sensex gained 0.2%. Shanghai stocks were up 0.1%.
Reports/dates/facts/links worth paying attention to over the next week:
- August 14: Weekly unemployment claims; 30-year Treasury bond auction.
- August 15: Industrial production (July); producer price index (July); University of Michigan consumer sentiment index (August); New York Fed Empire State manufacturing survey (August).
- The Atlanta Fed’s new GDP forecasting model: GDPNow
Copyright © 2014 by Wright Investors’ Service, Inc. The views expressed in this blog reflect those of Wright Investors’ Service, Inc. and are subject to change. Statements and opinions therein are based on sources of information believed to be accurate and reliable, but Wright Investors’ Service, Inc. makes no representations or guarantees as to the accuracy or completeness thereof. These views should not be relied upon as investment advice.