Record and pullback: S&P 500 tops 7,800 then retreats on US consumer data
July retail sales fell 0.6% against expectations of growth, right after the index's all-time high. Annual inflation at 3.4% leaves markets betting on a Fed on hold in September, awaiting Jackson Hole.
Within the span of a few days, Wall Street did two opposite things. First the record: the S&P 500 topped 7,800 for the first time, closing at 7,798.99, with the Nasdaq Composite at 26,803.03 and the Dow Jones at 53,839.99. Then the reversal: after retail sales and consumer confidence data, the index gave up 0.2%, moving away from the record.
The figure that turned sentiment was consumption. July retail sales fell 0.6% month-on-month, while consensus estimated a 0.2% increase. The gap runs eight-tenths of a point in the opposite direction of expectations: not a slowdown in growth, but a contraction where expansion was expected.
“The retail sales number came in much weaker than expected” (transl. from English) — Collin Martin, head of fixed income research at the Schwab Center for Financial Research
On the price front, the picture is one of slow cooling. The U.S. consumer price index rose 0.1% in July, bringing the annual figure to 3.4%. The core component — stripped of the most volatile items — rose 0.2% monthly and 2.5% year-on-year. The gap between the two annual figures, nearly a full percentage point, suggests that the stickier part of inflation is closer to target than the headline number implies.
| Indicator | Value |
|---|---|
| S&P 500 (record close) | 7,798.99 |
| Nasdaq Composite | 26,803.03 |
| Dow Jones | 53,839.99 |
| Consumer prices, July | +0.1% monthly, +3.4% annual |
| Core component | +0.2% monthly, +2.5% annual |
| Retail sales, July | −0.6% monthly (expected +0.2%) |
The combination — inflation cooling slowly, consumption suddenly braking — explains why money markets are pricing in less than a 40% probability of a rate hike by the Federal Reserve in September. It is a bet on immobility: neither the urgency to tighten, nor the conditions to ease.
Within the central bank, however, the position is not unanimous. Cleveland Fed President Beth Hammack reiterated her view that the institution should raise rates immediately to bring down inflation. This is a voice running counter to what markets are pricing in, and should be recorded as the position of an identified member of the system, not as the committee’s stance.
The paradox of the moment lies in the behavior of volatility. The VIX index has fallen to 2026 lows, below the 14.4 mark: operators, that is, are not buying protection. A market hitting all-time highs while simultaneously posting a negative consumption figure should, in theory, show more nervousness. It is not doing so, and this is the most interesting piece of information this week: the drop in consumption is being read as an argument in favor of a more accommodative monetary policy, not as a sign of weakness in the real economy.
The event that could either confirm or break this reading is scheduled for August 27-29: the Federal Reserve’s Jackson Hole symposium. This is the venue where, historically, the central bank communicates its medium-term outlook outside the format of regular meetings.
In the meantime, the data calendar remains the real arbiter. If July’s consumption contraction is confirmed in subsequent months, the below-40% probability currently attached to a September hike would fall further; if it was an isolated episode, markets would have to quickly reprice a scenario they currently take as settled.
Sources: CNBC; Charles Schwab; Bloomberg.
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