The Sluggish State of the Stock Market: Understanding the Factors Behind the Frozen Movement
Summary The stock market experienced a sluggish day, with the S&P down almost half a percent, the Dow Jones falling over one percent, and the NASDAQ only decreasing by a 15th of a percent. The retail sales data released indicated a minimal miss on the top end, but the core number surpassed expectations. However, on considering inflation, retail sales have been decreasing for two years, suggesting a possible weakening of the consumer. Home Depot reported their worst earnings in 20 years, further worsening the situation for consumers. The uncertainty surrounding a debt ceiling extension adds to the market's frozen state, not helping it move much. Economic data, when compared with the FED's monetary policy, indicates a lower correlation between assets at present. The belief is that movement may not occur until June or September, or even later, as data begins to coincide with the reason for the FED's pause. The speaker suggests it may be exciting for now, but if inflation remains high and the markets remain steady, evidence of tightening in the future could lead to movement. Job losses could be the last straw, leading to fluctuation in gold and bonds. Keeping an eye on the debt ceiling is recommended to be prepared for anything. In conclusion, the market's current state is sluggish, mainly due to declining retail sales and Home Depot's earnings report. Uncertainty surrounding the debt ceiling extension only adds to this frozen state, along with a low correlation between economic data and the FED's monetary policy. Movement is not expected until June or September, and one should stay alert for job losses and keep watch of gold and bonds.
The stock market experienced a sluggish day, with the S&P down almost half a percent, the Dow Jones falling over one percent, and the NASDAQ only decreasing by a 15th of a percent. This trend has been consistent in recent times. There are several factors that explain the market's current state, mainly declining retail sales and Home Depot's earnings report. The uncertainty surrounding a debt ceiling extension adds to the market's frozen state, along with a low correlation between economic data and the FED's monetary policy.
The Declining Retail Sales
The retail sales data that were recently released indicated a minimal miss on the top end, but the core number surpassed expectations. However, when considering inflation, retail sales have been decreasing for two years, suggesting a possible weakening of the consumer. This is an issue because consumer spending has been the driving force of the country's growth. When the consumer weakens, it directly impacts the market because the consumer accounts for over 70% of the country's GDP.
The Disappointing Home Depot's Earnings Report
Home Depot reported their worst earnings in 20 years, which further complicates the already existing problem for consumers. The poor sales figure may signify reluctance among the consumers in the US to spend more money. A decrease in spending can lead to job losses, which inevitably affects the economy and the stock market. Meanwhile, Home Depot's shares fell by 4.3% to $297.98, the company's lowest point since October 2019. The poor performance by the retail giant shows the poor state of the market.
The Uncertainty Surrounding the Debt Ceiling
The uncertainty surrounding a debt ceiling extension adds to the market's frozen state, not helping it move much. The debt limit, which determines how much the government can borrow, is set to expire on August 1. Democrats and Republicans are yet to agree on the borrowing ceiling, and failure to come to a conclusion can lead to a downgrade of the US credit quality, which will impact the financial market negatively.
The economic data, when compared with the FED's monetary policy, indicates a lower correlation between assets at present. The belief is that movement may not occur until June or September, or even later, as data begins to coincide with the reason for the FED's pause. It may be exciting for now, but if inflation remains high and the markets remain steady, evidence of tightening in the future could lead to movement. Job losses could be the last straw, leading to fluctuation in gold and bonds. Keeping an eye on the debt ceiling is recommended to be prepared for anything.
Conclusion
In conclusion, the market's current state is sluggish, mainly due to declining retail sales and Home Depot's earnings report. Uncertainty surrounding the debt ceiling extension only adds to this frozen state, along with a low correlation between economic data and the FED's monetary policy. Movement is not expected until June or September, and one should stay alert for job losses and keep watch of gold and bonds. Understanding and monitoring these factors will be crucial in predicting and navigating the market's future movements.
