On August 15th, the U.S. Department of Commerce released the retail sales data for July. Retail sales increased by 0.7% compared to the previous month, surpassing market expectations of 0.4%. Core retail sales, which exclude automobiles and gasoline, increased by 1.0% compared to an expected increase of 0.4%.
【Source：Trading economics】
Retail sales account for about one-third of total consumer spending and are often seen as a barometer of the U.S. economy. The strong growth rate in July indicates a favorable economic condition in the United States. However, after the data was announced, the three major U.S. stock indexes experienced a general decline, with the S&P 500 index closing down 1.16% on the same day.
Why did better-than-expected retail data lead to a stock market decline? It's because concerns about inflation resurfaced.
The slowdown in the U.S. consumer market, combined with the continuous rise in energy prices since July, suggests that the convergence of inflation rates in the second half of the year will be limited. It is expected that the high-interest-rate environment will persist, possibly postponing the start of an interest rate-cutting cycle.
According to CME FedWatch data, market expectations for a rate cut in March next year have decreased, while the possibility of a rate cut in May has further increased.
【Source：CME】
Mitrade Analyst：
Market concerns have shifted from recession to inflation, resulting in higher-than-expected data being perceived as negative for the stock market. Currently, the market is highly influenced by sentiment. When the market is optimistic, most economic data tends to drive stock prices up, whereas when the market is cautious or pessimistic, most economic data tends to cause a decline in stock prices, and people tend to identify bearish factors from it.
