Before The Bell - Data released Friday morning showing stronger-than-expected retail sales augurs well for a positive opening for stocks. But for much of the week, mixed earnings reports and concerns about economic growth caused stocks to pause from their recent stair-stepping higher.
Investors also continue to mull over whether accelerating inflation will prove temporary, as Federal Reserve Chairman Jerome Powell maintained this week in a report to Congress.
The nation’s major banks kicked off earnings season showing some dents in their armor. A dip in net interest income caused by lower interest rates and tepid loan growth have not done much to excite investors, even as profits rise with improved consumer spending and a pickup in credit quality.
The booming economy was supposed to rekindle loan demand but, for now, enough businesses and consumers either have sufficient cash or are able to tap resources outside the banking system, to avoid taking out traditional loans.
Elsewhere, a report showing China’s second-quarter GDP slowed to 7.9% from a bell ringing 18.3% in the first three months of 2021 was disappointing. The result was not far from the 8.0% expected, but the emphasis was on the slower rate of expansion that is expected to continue in the second half of the year.
Concerns that growth has peaked on these shores have made some investors uneasy. In that vein, sentiment toward the once-hot financial and energy sectors has cooled in recent weeks. However, those segments could get their second wind if the expansion stateside continues at an above-trend rate in 2022 and 2023.
Questions about growth extend to the bond market, where low yields and rising prices have many on Wall Street scratching their heads. Lately, it has been a case of more buyers, such as banks, insurance companies, pension funds, foreign investors, and the Federal Reserve, than sellers. The yield on the 10-year Treasury note fell to 1.30% on Thursday, after rising above 1.70% earlier in 2021.
But, over time, there is still a good possibility that yields will rise as the economic expansion continues, and particularly if some of the inflation now unfolding proves more lasting than temporary. That could well prove the case if employers need to raise wages to attract workers.
On Thursday, the thinking that the Federal Reserve may need to tap the brakes on its aggressive stimulus earlier than expected, and fears of a resurgence in Covid-19 cases, diminished enthusiasm for stocks. The Dow Jones Industrial Average gained 54 points, but the S&P 500 and the NASDAQ gave back 14 points and 102 points, respectively. - Robert Mitkowski