Wall Street slipped again on Friday, ending the week lower as tepid economic data weighed on banks and worries deepened over Nordstrom and other department stores. To put it another way, risk-averse sentiment gripped the Street this week after President Donald Trump unexpectedly fired his FBI chief, the potential fallout from which could delay Trump’s pro-growth goals to cut taxes and boost spending on infrastructure.
Soft retail sales and monthly inflation data on Friday raised concerns about slow economic growth and questions about whether the Federal Reserve could maintain its hawkish outlook for interest rates this year.
Federal funds futures implied a 49-percent chance of two more rate hikes this year, compared with 54 percent shortly before the release of the data, CME Group’s FedWatch tool showed.
Banks, which typically benefit from higher interest rates, dragged on the S&P 500 and Dow Jones Industrial Average. The S&P 500 financial sector index fell 0.45 percent, while the industrial fell 0.65 percent.
Department stores faced serious pressure for a second straight day after J.C. Penney reported lower-than-expected comparable-store sales, sending its shares down 13.99 percent. Nordstrom fell 10.84 percent after weak quarterly same-store sales. Macy’s fell 3.04 percent, bringing its loss to more than 19 percent in the past two sessions following its dismal quarterly report.
The less-than-expected 0.4 percent month-over-month increase in April retail sales stirred fears about the retail sector as well as the economy.
For the week, the Dow fell 0.5 percent, the S&P 500 lost 0.4 percent and the Nasdaq rose 0.3 percent.
With a better-than-expected first-quarter reporting season all but complete, S&P 500 companies on average are now predicted by analysts to grow their second-quarter earnings by 8.3 percent, according to Thomson Reuters I/B/E/S.
The S&P 500 is trading at 17.6 times expected earnings, higher than its 10-year average of 14.2.
GE was the top percentage loser on the Dow, down 2.08 percent after Deutsche Bank downgraded its shares to “sell” from “hold”.
Approximately 6.1 billion shares changed hands on the major domestic equity exchanges, a number that was below with the daily average of 6.8 million shares over the last 20 sessions.
Retail Sales Rise Along with the CPI
Retail sales increased broadly in April while consumer prices rebounded, pointing to a pickup in economic growth and a gradual rise in inflation that could keep the Federal Reserve on track to raise interest rates next month.
According to a report released by the Commerce Department Friday morning, retail sales were up 0.4 percent in April, after an upwardly revised 0.1 percent gain in March. Sales rose 4.5 percent in April on a year-on-year basis.
The reports on Friday added to labor market data in suggesting the near stall in economic activity in the first quarter was an anomaly. But a moderation in year-on-year inflation led financial markets to dial down expectations of at least two more rate increases this year.
Excluding automobiles, gasoline, building materials and food services, retail sales gained 0.2 percent after advancing 0.7 percent in March. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.
The economy grew at a 0.7 percent annualized rate in the first quarter, held back by the weakest increase in consumer spending in more than seven years. The Atlanta Fed estimates GDP will rise at a 3.6 percent pace in the second quarter.
In a separate report on Friday, the Labor Department said its Consumer Price Index rose 0.2 percent after dropping 0.3 percent in March. The rise in prices suggested that March’s decline, which was the first in 13 months, was an aberration.
In the 12 months through April, the CPI increased 2.2 percent. While that was a slowdown from March’s 2.4 percent increase, it still exceeded the 1.7 percent average annual increase over the past 10 years.
Financial markets are pricing in more than a 70 percent chance of a rate hike at the Fed’s June 13-14 policy meeting, according to CME Group’s FedWatch program. But the likelihood the U.S. central bank will raise rates twice before the end of the year fell after Friday’s data.
Treasury prices rose and the dollar index weakened against a basket of currencies after the release of Friday’s data. Putting pressure on stock were the weak financial and industrial sectors.
Gasoline prices rose 1.2 percent in April after falling 6.2 percent in March. Food prices rose 0.2 percent as prices for fresh vegetables recorded their biggest increase since February 2011.
The so-called core CPI, which strips out food and energy costs, edged up 0.1 percent last month, reversing March’s 0.1 percent dip. The monthly core CPI was restrained by declines in the prices of wireless phone services, medical care, motor vehicles and apparel.
Rental costs increased 0.3 percent after a similar gain in March. The core CPI increased 1.9 percent on a year-on-year basis, the smallest gain since October 2015, after rising 2.0 percent in March. Still, April’s increase was above the 1.8 percent average annual increase over the past decade.
Consumer spending is being supported by a tightening labor market, marked by an unemployment rate at a 10-year low of 4.4 percent. A third report on Friday showed consumer sentiment rose in early May as the outlook for wages improved.
Motor vehicle sales increased 0.7 percent in April after three straight months of decreases and there were large gains in sales at stores selling building materials, electronics, and appliances.
Sales at clothing stores declined by 0.5 percent. Department store retailers have been hurt by declining traffic in shopping malls and increased competition from online retailers, led by Amazon.com.
J.C. Penney said on Friday its net loss widened to $180 million, or 58 cents per share, in the first quarter. On Thursday, Macy’s Inc (M.N) reported a 4.6 percent drop in first-quarter sales. Sales at online retailers rose 1.4 percent in April.