A surge in Treasury yields to their highest level in almost seven years sent shares sliding on Wall Street on Tuesday, after strong retail sales data stoked inflation concerns and investors fretted about looming trade talks between the United States and China.
All three major equity indexes ended the trading day lower, with the S&P 500 ending a four-day winning streak and the Dow Jones Industrial Average posting its first loss in eight sessions.
The yield on the 10-year Treasury note rose to its highest level since July 2011, suggesting an uptick in inflation and sending the dollar index to its highest close in 2018, thereby raising expectations for further interest rate hikes from the Federal Reserve.
Core April retail sales – which excludes gasoline, automobiles, building materials and food services – rose at a brisker 0.4 percent monthly pace over March, as consumer spending is quickening its pace after a first-quarter slowdown.
Investors also remain preoccupied by the run-up to high-level talks between China and the United States set to commence this week in Washington. Negotiations remain “very far apart” regarding a tariff resolution, after which White House economic adviser Larry Kudlow told Politico he supports efforts to reach an agreement.
The losses were broad-based, with all 11 major S&P sectors, except energy, ending the day lower. Real estate, healthcare and technology sectors posted the largest percentage losses.
Home Depot fell 1.6 percent after the home improvement retailer missed sales forecasts as the long winter put a damper on demand for spring products. Smaller rival Lowe’s was down 1.0 percent.
Approximately 6.60 billion shares changed hands on the major domestic equity exchanges, as compared to the 6.67 billion-share average over the past 20 trading days.
Retail Sales Show Moderate Gain
Retail sales showed a moderate gain in April as rising gasoline prices weighed on discretionary spending. At the same time, consumer spending appeared on track to accelerate after slowing sharply in the first quarter. Retail sales in April increased 4.7 percent from a year ago.
In a report released by the Commerce Department on Tuesday morning, retail sales were indicated to have risen by 0.3 percent during April. Data for March was revised upward to indicated sales rising 0.8 percent instead of the previously reported 0.6 percent rise.
Excluding automobiles, gasoline, building materials and food services, retail sales rose 0.4 percent last month after an upwardly revised 0.5 percent increase in March. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.
The core number was previously reported to have chalked up a gain of 0.4 percent in March. Consumer spending braked sharply in the first quarter, growing at its slowest pace in nearly five years, amid delays in processing tax refunds. In addition, clean-up efforts in the wake of back-to-back hurricanes in late 2017 had pulled forward spending into the fourth quarter.
A recent increase in gasoline prices, if sustained, could blunt the impact of lower income taxes on consumer spending. Gasoline prices rose almost 17 cents to $2.757 per gallon in April, the highest price since July 2015, according to data from the Energy Information Administration.
Consumer spending, which accounts for more than two-thirds of our domestic economic activity, grew at a pedestrian 1.1 percent annualized rate in the first quarter. The economy expanded at a 2.3 percent pace in the January-March period.
In April, auto sales edged up 0.1 percent after accelerating 2.1 percent in March. Receipts at service stations jumped 0.8 percent, reflecting higher gasoline prices.
With prices at the pump rising, sales at restaurants and bars fell 0.3 percent, the largest drop since February 2017. Americans also cut back on spending on hobbies. Receipts at sporting goods and hobby stores dipped 0.1 percent last month, matching March’s drop.
Sales at furniture stores rose 0.8 percent after surging 1.4 percent in March. Receipts at electronics and appliance stores slipped 0.1 percent while sales at building material stores rose 0.4 percent last month.
Receipts at clothing stores shot up 1.4 percent, the biggest increase since March 2017, while sales at online retailers increased 0.6 percent.