Wall Street Surges as Retail Sales Slump Spurs Rate Cut Hopes
In a tumultuous trading session, Wall Street surged higher on Thursday following the release of disappointing retail sales figures, fueling hopes among investors for imminent interest rate cuts by the Federal Reserve to bolster economic resilience.
According to data from the Commerce Department, U.S. retail sales took an unexpected nosedive in January, plunging by 0.8%, primarily attributed to declines in sales at auto dealerships and gasoline service stations.
Market analysts and investors seized upon the negative retail report as a potential catalyst for Federal Reserve intervention. Neville Javeri, a portfolio manager at Allspring Global Investments, remarked, “Investors are cheering the fact that we got a weaker-than-anticipated retail report. Maybe the consumer is slowing, maybe this negates the higher CPI number we saw a couple of days ago.”
The disappointing retail data prompted speculations that the economy might be encountering headwinds, which in turn increases the likelihood of the Fed implementing interest rate cuts. Thomas Martin, senior portfolio manager at GLOBALT, highlighted, “It shows that maybe the economy might be a little weak and so that’s a sort of a bad news that is potentially good news because it means the Fed is more likely to cut rates.”
Market sentiment regarding rate cuts was reflected in the CME Group’s FedWatch Tool, with bets for a rate cut of at least 25 basis points in May edging up to 40%, while the odds for June stood at roughly 79%.
In addition to the retail sales data, positive signals emerged from the labor market, with initial claims for state unemployment benefits standing at 212,000 for the week ended Feb. 10, lower than the estimated 220,000.
The S&P 500 gained 29.05 points, or 0.58%, closing at 5,029.67 points, while the Nasdaq Composite gained 47.03 points, or 0.30%, reaching 15,906.17. The Dow Jones Industrial Average rose 350.07 points, or 0.91%, to 38,774.73.
Despite the overall market optimism, certain stocks experienced notable fluctuations. Alphabet dropped 2.17% after investment firm Third Point dissolved its stake, while Apple shares were pressured by Warren Buffett’s Berkshire Hathaway trimming its stake and Soros Fund Management entirely dissolving its position. However, Apple managed to recover in late trading, closing down just 0.1%.
Investor sentiment was buoyed by positive earnings surprises, with 80.3% of S&P 500 companies surpassing earnings expectations, surpassing the annual 76% average.
CBRE Group soared 8.5% after forecasting annual profit largely above estimates, driving a rise in the S&P 500 real estate sector. Wells Fargo jumped 7.2% after the U.S. Office of the Comptroller of the Currency terminated a 2016 consent order over the bank’s sales practices misconduct.
Despite the overall bullish trend, some sectors faced challenges. Cisco Systems fell 2.43% after announcing plans to cut 5% of its global workforce and lowering its annual revenue target. Deere & Co, the world’s largest farm-equipment maker, lost 5.2% after cutting its 2024 profit forecast. West Pharmaceutical Services tumbled 14.1% after forecasting full-year results below estimates.
Advancing issues outnumbered decliners by a significant margin on both the NYSE and Nasdaq, reflecting the broad-based optimism pervading the market. On U.S. exchanges, 12.24 billion shares changed hands compared with the 11.7 billion moving average for the last 20 sessions.
In conclusion, Thursday’s trading session witnessed Wall Street’s resilience in the face of disappointing retail sales figures, fueled by hopes of impending rate cuts by the Federal Reserve. While uncertainties loom over certain sectors, the overall market sentiment remains cautiously optimistic, underpinned by positive labor market indicators and robust corporate earnings performances. Investors eagerly await further economic indicators and Fed decisions in the coming months to navigate through the evolving market landscape.
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