Stocks extended their August declines last week as higher yields and weak economic data out of China soured investor sentiment. The Dow Jones Industrial Average lost 2.21%, while the Standard & Poor’s 500 retreated 2.11%. The Nasdaq Composite index backtracked 2.59% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, slumped 2.83%.1,2,3
Rising bond yields, driven primarily by strong economic data and the release of the minutes from July’s Federal Open Market Committee (FOMC) meeting that pointed toward Fed officials’ potential need to raise rates further, weighed on stocks throughout the week. In a week of light trading typical of August, stocks were additionally buffeted by a string of economic data that painted a flailing economic recovery in China and warnings of potential downgrades of dozens of U.S. banks by Fitch, a credit-rating agency. After the 10-year Treasury yield rose to its highest level since October 2022 on Thursday, yields eased on Friday, helping to arrest the week’s downward trend.4
Retail sales jumped 0.7% in July, the fourth-consecutive month of increasing consumer spending on goods. The report supported the growing narrative that the U.S. may be able to avoid a recession in the near term. The strong spending data, supported by a robust labor market, also may have placed the Fed in a more difficult position in trying to bring inflation down to its target rate without more rate hikes.5 Consumer spending was higher in most categories, including bars and restaurants, grocery and hardware stores, and back-to-school items like books and clothing. Sales of autos and electronics fell, a possible consequence of higher borrowing costs.5
- The Wall Street Journal, August 18, 2023, 2. The Wall Street Journal, August 18, 2023, 3. The Wall Street Journal, August 18, 2023, 4. CNBC, August 18, 2023, 5. The Wall Street Journal, August 15, 2023