Wall Street mixed as tax hikes, inflation data looms
Strong late-summer back-to-school sales could provide U.S. retailers some needed momentum after many sector shares lagged the broader market in recent months.
The S&P 500 retailing index (.SPXRT), which includes Amazon.com Inc (AMZN.O), is up just about 2% for the quarter so far, compared with a 6% gain in the S&P 500 (.SPX).
Some retailers, including Macy’s Inc (M.N) and Walmart Inc(WMT.N), cited upbeat back-to-school data recently as they increased annual U.S. sales forecasts, but further sales data and the U.S. August retail report are expected later this month. read more
With the help of advance child tax credits and stimulus checks related to the pandemic, some consumers have had extra cash to load up on backpacks and other supplies.Still, signs of caution have been growing in some corners of the market, fueled in part by rising coronavirus cases across the country and uncertainty over how quickly the Fed will tighten monetary policy once it begins its taper.
With worries over the Delta variant looming, “to continue to question the rally because of seasonality makes sense,” said JJ Kinahan, chief market strategist at TD Ameritrade.
While major indexes stand near fresh highs, many stocks have been left behind. Tuesday marked the first time in nearly seven years that the S&P 500 hit a closing high while a 10-day total showed more stocks on the New York Stock Exchange and Nasdaq making 52-week lows than making 52-week highs, according to Willie Delwiche, an investment strategist with market research firm All Star Charts.
Investors have also been cutting back on leverage, with margin debt dropping 4.3% to $844 billion in July even as the S&P advanced more than 2%, according to data from BofA Global Research. The S&P 500 has been lower 71% of the time one year after a peak in margin debt has been reached, the bank’s analysis showed.
Net leverage among hedge funds, meanwhile, stood at 50% at the start of the third quarter compared with 58% late last year, according to a Goldman Sachs report.
Though the market’s year-to-date gains have been spectacular, investors have questioned how much juice remains in the rally. A Reuters poll this week showed strategists believe the S&P 500 is likely to end 2021 not far from its current level.
A window into how the Delta variant has rippled through the economy will come next Friday, with the release of the U.S. jobs report for August, following recent weak readings on consumer sentiment and retail sales. The seven-day average of new reported cases reached about 155,000, the highest in about seven months, Reuters data through Thursday showed.
“When I sift through the noise … that’s what the market is focusing on right now, plain and simple,” said Jack Janasiewicz, portfolio manager at Natixis Investment Managers Solutions.
Still, there is plenty of support for the view that equities are likely to continue grinding higher into the end of the year.
BofA Securities said buybacks from corporate clients last week hit their highest level since mid-March, a potential source of support for stocks. Those were led by financials, which notched their highest weekly buybacks since 2010, BofA wrote.
“Despite the tangible Covid variant spike, we think the economy will continue to chug along,” boosted by corporate and consumer spending, said Rick Rieder, BlackRock’s chief investment officer of global fixed income, in a note to investors on Friday.
Some investors remain ready to jump on any downswings brought on by higher volatility in the coming weeks. “If we do see a pullback in September, I would definitely be telling our clients, ‘take this as a buying opportunity,’” said Janasiewicz.