Market Snapshot: Dow recovers to post modest gains despite dismal U.S retail sales data, tensions with China

However, stocks closed out the week lower, with the Dow down 2.7%, the S&P 500 losing 2.3% and the Nasdaq 1.2% lower.

What drove the market?

U.S. retail sales fell 16.4% in April, the Commerce Department reported, as businesses remained all but shut down, exceeding the 12.5% drop expected on average by economists polled by MarketWatch. Excluding autos, sales still dropped 16.2%.

“Consumers reacted quickly to the near shutdown in the economy in mid-March, stocking up on groceries while slashing spending on virtually everything else,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors, in emailed comments. “That pantry-stocking buying binge subsided in April, leaving traditional retailers feeling the pain across the board,”

“Until there is a greater sense of confidence that the virus is under control, economic activity is unlikely to return to normal,” he said. “Still, the gradual lifting of restrictions across the country should signal a bottoming in the economy and the first steps toward recovery.”

Helping boost sentiment were expectations that the Democratic-controlled House of Representatives would authorize more than $3 trillion in new spending to blunt the economic impact of the COVID-19 epidemic, the centerpiece of which would be nearly $1 trillion in aid to state and local governments. The measure is not expected to pass the Republican-led Senate, but the Trump Administration has indicated willingness to work out a deal on new spending.

“This week’s trade looks and feels like a backfill, amidst persistent bearishness and growing impatience with the pace of reopening,” Brian McCarthy chief strategist at Macrolens, wrote in a Friday note to clients. “But re-opening we are, a process that seems likely to accelerate. Meanwhile, “Stimulus IV” has begun to come into focus and it looks like it has tremendous bullish potential.”

The expiration of individual stock and stock-index options at the close of trade could also have driven some of the back-and-forth action in equities markets, hedge fund manager and former Goldman Sachs portfolio manager Will Meade said on Twitter.

The New York Fed’s Empire State business conditions index rose 29.7 points but only to negative 48.5 in May. Economists had expected a reading of -65, according to a survey by Econoday. A figure below 50 indicates a contraction in demand.

The Federal Reserve said industrial production fell 11.2% in April for its largest monthly drop in the 101-year history of the data series. Economists, however, had forecast a slump of 12.5%. Capacity utilization fell to 64.9% in April from 72.7%. Economists had forecast a reading of 63.2%.

The University of Michigan said its preliminary consumer sentiment index for May rose to 73.7 from 71.8 in April.

Investors also eyed reports that the U.S. Commerce Department was moving to block shipments of semiconductors by global chip makers to China’s Huawei Technologies. The Commerce Department said it was amending an export rule to “strategically target Huawei’s acquisition of semiconductors that are the direct product of certain U.S. software and technology,” the report said.

Global Times editor Hu Xijin, who is widely thought to have close ties to the Chinese government, said China may retaliate if the U.S. prevents microchip shipments to Huawei.

“Based on what I know, if the U.S. further blocks key technology supply to Huawei, China will activate the ‘unreliable entity list,’ restrict or investigate U.S. companies such as Qualcomm QCOM, -5.13% , Cisco CSCO, +0.95% and Apple AAPL, -0.59% , and suspend the purchase of Boeing BA, -2.05% airplanes,” he said on Twitter.

Earlier, economic data out of China showed factory output rose 3.9% in April from a year earlier, picking up after a 1.1% year-over-year contraction in March as the country continued to emerge from lockdowns imposed to combat the coronavirus epidemic. Consumer spending, however, contracted 7.5% year-over-year after a 15.8% decline in March.

“China is widely seen as the bellwether for navigating a post-lockdown world. Despite its supply-side forces faring better at present compared to demand-side indicators, it’s evident that China is only managing to tiptoe out of the lockdown gates as opposed to racing out of the blocks, even if the data does point to signs of recovery,” said Han Tan, market analyst at FXTM, in a note.

Which companies were in focus?

• Shares of Applied Materials Inc. AMAT, -4.39% fell 4.4%, after the chip maker reported mixed second-quarter results late Thursday. Premarket losses were extended after the reports about potential U.S. restrictions on chip sales to Huawei. Chip stocks overall were under pressure, with the PHILX Semiconductor Index SOX, -2.19% down 3.5%. 
• Nike Inc. NKE, +0.50% shares gained 0.5% after the athletic-wear said that strong online sales were picking up the slack for sluggish store sales.
• Shares of department-store retailer J.C. Penney Co. Inc. JCP, +21.24% jumped 21.2% after it said it had made an interest payment of around $17 million on its senior secured term loan credit facility and will continue to consider its strategic alternatives. Shares had fallen in premarket trade after news reports Thursday night said the retailer was set to file for bankruptcy in coming days.
• Sorrento Therapeutics Inc. SRNE, +158.01% shares soared 158% after reports that it might have an antibody that can fight the novel strain of coronavirrus.
• BofA securities analyst Robert Ohmes reduced his price target on Canada Goose Holdings Inc. GOOS, -7.15% shares by 38%; the outerwear company’s stock fell 7.2% Friday.

How did other major markets trade?

Crude-oil prices rose as traders turned their attention to production cuts and signs of a preliminary pickup in demand. West Texas Intermediate Crude for June delivery CLM20, +7.51% $1.87, or 6.8%, to settle at $29.43 barrel on the New York Mercantile Exchange.

The price of an ounce of June gold GCM20, +0.68% climbed $15.40, or 0.9%, to settle at $1,756.30 an ounce.

The benchmark U.S. 10-year Treasury note TMUBMUSD10Y, 0.644% ticked up 0.2 basis point to about 0.64%, while the 2-year Treasury was unchanged at TMUBMUSD02Y, 0.149% at 0.15%.

The ICE U.S. Dollar Index DXY, -0.07%, a measure of the currency against a basket of six major rivals, fell 0.1% at 100.41.

European stocks closed higher Friday, with the Stoxx Europe 600 SXXP, +0.46% adding 0.5%, while the FTSE 100 UKX, +1.01% rose 1%.

In Asia, the Hong Kong Hang Seng HSI, -0.13% fell 0.1%, the Nikkei 225 NIK, +0.61% rose 0.6%, the Shanghai Composite Index SHCOMP, -0.06% closed 0.1% lower, while the CSI 300 Index 000300, -0.31% fell 0.3%.