In confusing trading, the S&P 500 and the Dow fell from record closing highs on Tuesday as fears over the continued surge in COVID-19 cases and tightening restrictions across more states undermined the confidence from two potentially successful vaccine candidates.
On top of that weak retail sales data made investors realise the US consumer is running out of money and there is no sign of any help from the lame-duck Trump administration with the President trying to stave off the inevitable defeat by Joe Biden.
October’s retail sales report released showed spending slowing as the post-Thanksgiving holiday shopping season approaches (a week tomorrow).
Retail sales rose 0.3% in October, the smallest rise since the recovery started in May and sharply lower than the 1.6% rise in September.
Economists say the sales rise was bolstered by Amazon moving its Prime Day sale to July from its normal timing in October. Amazon said sales jumped 3.1% at the sale. The change could have upset the seasonal adjustment parameters used to work out sales data.
Retail sales were up 5.7% in October from October 2019 and are above their pre-pandemic February level, with the pandemic shifting demand away from services to goods.
Despite that apparent positive, Reuters pointed out there were other signs the $US3 trillion in stimulus spending is running out of puff.
Excluding automobiles, gasoline, building materials and food services, retail sales were up 0.1% after a downwardly revised 0.9% increase in September.
“These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product,” Reuters pointed out.
They were previously estimated to have risen 1.4% in September, so the downward revision was steep and a concern. On top of this, while industrial production rose in October, the level of output is still under February levels, another pointer to the continuing weakness in demand.
It’s no wonder that Federal reserve chair, Jay Powell is worried.
He said it was not time to shut down emergency programs aimed at offsetting the economic fallout from the coronavirus pandemic, with cases again surging and the economy left with “a long way to go” to recover.
“With the virus now spreading at a fast rate, the next few months will be very challenging,” he said.
The weakness in October’s retail sales data was underlined by good profit results from giant Walmart, with a 6.4% rise in sales for the quarter. Home Depot which beat quarterly profit and sales estimates as consumers used stay-at-home restrictions to focus on home renovation projects (a situation similar to Australia with Bunnings creaming it for Wesfarmers).
Shares in department store chain, Kohl’s Corp were up 9% at one stage after the department store chain posted a surprise quarterly profit and forecast strong margins for the upcoming holiday season.
Quarterly results from Target Corp, the number two retailer and Home Depot rival, Lowe’s Companies Inc are expected before the open on Wednesday.
Helping on the positive was a sharp rise in Tesla shares after it was announced the electric vehicle maker would be added to the S&P 500 from December 31.
The shares jumped 9% at one stage as investors positioned themselves ahead of the move.
At the close the Dow fell 167.09 points, or 0.56%, to finish 29,783.35, the S&P 500 lost 17.38 points, or 0.4%, to close at 3,609.53 and the Nasdaq shed 24.79 points, or 0.21%, to end at 11,899.34.
