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WEEKLY SUMMARY: Worst week for stocks since the banking crisis
US stocks retreated for a third consecutive week as sentiment appeared to take a blow from a sharp increase in longer-term bond yields and fears of a sharp slowdown in China. The S&P 500 index ended the week down 5.2% from its July 26 intraday peak. Small-cap stocks performed the worst. On the macro side, July US retail sales jumped 0.7% over the month, roughly double consensus estimates. Sales in specific categories indicated a sharp rise in discretionary spending (e,g +11.9% yoy for restaurants and bars). Industrial production grew by 1.0% in July, roughly triple consensus estimates and its biggest gain since January. The Wednesday release of the (July) FOMC minutes seemed to raise worries about how policymakers would respond to continued growth signals and was taken as rather hawkish by investors. The positive economic surprises pushed the US 10-year yield to its highest level since at least October 2022, although heavy issuance may have also played a role. The pan-European STOXX Europe 600 Index fell 2.34% on the prospect of a prolonged period of higher European interest rates and intensifying concerns about the outlook for China’s economy. Indeed, official data for July revealed that China’s economic activity continued to weaken. Industrial output and retail sales grew at a slower-than-expected pace in July from a year earlier. Meanwhile, New home prices in 70 of China’s largest cities fell 0.23% in July from June. Over the week, Oil retreated, the dollar rose while cryptos tumbled.
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US equities managed to snap a string of three weekly losses. Earnings took center stage with the spotlight on the Magnificent 7 stocks. Despite the high bar, companies have so far been able to beat expectations, helping the S&P 500 recover half of its April losses. The Nasdaq outperformed, up 4% on the week (its best week since the start of Nov 2023), helped in part by strength in Apple and a late rebound in chipmaker NVIDIA. Shares in Google parent Alphabet also surged in the week following its announcement of better-than-expected Q1 earnings along with the company’s first dividend payment. The Dow was the laggard. On the Macro side, the US economy expanded at an annualized rate of 1.6% in Q1, well below consensus estimates of around 2.5% and the slowest pace of growth in nearly two years.