Market Snapshot: U.S. stocks close lower, ending three week win streak, amid flagging consumer sentiment

How did stock benchmarks trade?

• The Dow Jones Industrial Average DJIA, -0.86% dropped 299.17 points, or 0.9%, to 34,687.85.
• The S&P 500 index SPX, -0.75% fell 32.87 points to 4,327.16 a drop of 0.8% weighed down by a 2.8% decline in energy sector SP500.10, -2.76% and a 1.3% in financials SP500.40, -1.34%.
• The Nasdaq Composite Index COMP, -0.80% dropped 115.90 points, or 0.8%, to 14,427.24.

On Thursday, the Dow rose 53.79 points or 0.15% today to 34,987.02, the S&P 500 fell 14.27 points, or 0.33%, to 4,360.03, while the Nasdaq Composite Index closed 101.82 points lower, or 0.70%, at 14,543.13.

For the week, all three major U.S. stock benchmarks fell, snapping their three week win streaks. The Dow saw a 0.5% weekly decline, while the S&P 500 had a 1% weekly loss and the Nasdaq fell 1.9% for the week. The small-capitalization Russell 2000 index RUT, -1.24% dropped 5.1% for the week in its third straight weekly loss.

What drove the market?

A good start to second-quarter earnings reports and strong June retail sales were overshadowed on Friday by evidence of flagging consumer sentiment, analysts said.

“Consumer sentiment’s sharp decline seems to be overpowering strong earnings and the rise in retail sales,” wrote Mike Loewengart, managing director, investment strategy at E-Trade Financial, in emailed comments to MarketWatch.

A preliminary reading of the University of Michigan’s index of consumer sentiment fell to 80.8 in July from a final reading of 85.5 in June, notching the measure’s lowest level since February. Economists expected a reading of 86.3, according to a survey by the Wall Street Journal.

The survey shows that consumers are preparing for a 4.8% increase in the cost of living this year, the highest level since 2008.

“Inflation has put added pressure on living standards, especially on lower and middle income households, and caused postponement of large discretionary purchases, especially among upper income households,” Richard Curtin, the University of Michigan survey’s chief economist, said.

Meanwhile, sales at U.S. retailers increased 0.6% last month, compared with a forecast for a 0.4% decline. Excluding autos, retail sales advanced 1.3%, almost three times as much as Wall Street expected.

“The economy is quite strong,” said James Solloway, chief market strategist and senior portfolio manager at SEI Investments Co., in a phone interview Friday. “Consumers are finally out of the house.”

People are taking more vacations and going into restaurants, he said, “switching the focus of their purchases to services” while also shifting toward buying goods in stores rather than online. 

But June retail sales data may have done little to quell the escalating concerns around inflation.

“Despite Powell’s continued messaging on inflation, concerns are clearly growing – especially around the rising prices of homes and cars – and contributing to the rollercoaster of a market we are currently seeing,” E-Trade’s Loewengart said.

Investors have also been digesting what has been mostly upbeat second-quarter corporate earnings results but the data has been mixed and market participants are growing increasingly unsure about the post-COVID outlook.

“This week’s earnings reports have by and large been positive but attention is now shifting to what comes next in terms of the outlook, and here the picture is less clear,” wrote Michael Hewson, chief market analyst at CMC Markets U.K. in research note.

“There was a great deal of optimism over the summer reopening, however as we look ahead to the rest of the year and look at how Delta variant infections are rising some of that optimism prompting the question as to where we go next for Q3 earnings expectations,” the analyst wrote.

Read: A ‘robust’ U.S. economy is strengthening, Fed’s Beige Book finds, but it is grappling with big shortages and higher inflation

Meanwhile, the spread of the more transmissible delta coronavirus variant has fueled jitters on Wall Street but the path of least resistance continues to be higher for stocks and lower for Treasury yields, with the 10-year benchmark TMUBMUSD10Y, 1.293% briefly slipping below 1.30% on Thursday.

The slide in yields suggests that fixed-income investors harbor some doubts about economic growth in the wake of the pandemic or also share Powell’s view that inflation will be short-lived.

In a phone interview Friday, Quent Capital founder Gregg Fisher pointed to the “incredible rise in the stock market that we’ve seen over the last year and a half,” expressing concern about stretched valuations. “Start thinking about areas around the globe that may not have the rich valuation that the S&P has,” said Fisher, whose New York-based firm invests in small-cap stocks globally.

Earlier Friday, the U.S. President Joe Biden was set to join Pacific Rim leaders, including China’s Xi Jinping and Russia’s Vladimir Putin in a virtual meeting to develop strategies to help economies rebound from the resurgent COVID-19 pandemic.

“I don’t see a broad lockdown of economies given the effectiveness of the vaccines, as they currently stand,” in keeping people from hospitalization should they become infected with the coronavirus, said Solloway. “It’s the unvaccinated people that are the problem.”

Read: Inflation is surging. How high will it go? Check out MarketWatch’s new tracker.

Which companies were in focus?

• Charles Schwab Corp. SCHW reported second-quarter earnings Friday that showed profit falling below estimates, while revenue beat, as it opened 1.7 million new brokerage accounts, exceeding 1 million for a third straight quarter. Shares of the company fell 2.4%.
• Shares of GameStop Corp. GME rose 1.3% Friday, to extend a bounce that started late in the previous session, and kept them on track to snap a five-day losing streak.
• Kansas City Southern KSU said Friday it swung to a second-quarter net loss, as a result of more than $700 million in merger costs, while also reporting an adjusted profit and revenue that came up short of expectations. Shares were down 1.1%.
• Bristol-Myers Squibb Co. BMY said Friday a late-stage study of a treatment for head and neck cancer failed to meet its main goals. Shares dipped 0.2%.
• U.S.-listed Chinese ride-hailing company Didi Global DIDI, -3.16%  tumbled 3.2% after state security and police officials were sent to the company’s offices Friday as part of a cybersecurity investigation, AP reported.
• Intel INTC, -1.51%  was in focus after The Wall Street Journal reported that the semiconductor giant was exploring a deal to acquire chip maker GlobalFoundries for around $30 billion. Shares of Intel slipped 1.5%.
• Moderna Inc. MRNA, +10.30%, a biotechnology company catapulted to fame after it produced a highly effective COVID-19 vaccine, is set to join the S&P 500 index, replacing Alexion Pharmaceuticals Inc. ALXN, -0.27%. Shares of Moderna jumped 10.3% and Alexion declined 0.3%.

How did other assets fare?

• The yield on the 10-year Treasury note rose less than one basis point to settle at 1.30% Friday, down 5.4 basis points for the week. Yields and bond prices move in opposite directions.
• The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six major rivals, rose 0.1%.
• Oil futures rose Friday, with the U.S. benchmark CL00 settling 0.2% higher at $71.81 a barrel but still down 3.7% for the week. Gold futures GC00 slipped 0.8% to settle at $1,815 an ounce.
• In European equities, the Stoxx Europe 600 SXXP closed 0.3% lower and finished 0.6% lower for the week, and London’s FTSE 100 UKX ended less than 0.1% lower, contributing to a 1.6% weekly skid for the bourse.
• In Asia, the Shanghai Composite SHCOMP fell 0.7% but booked a 0.4% weekly gain, the Hang Seng Index HSI advanced 0.03% but logged a 2.4% weekly rise, and Japan’s Nikkei 225 NIK closed 1% lower but notched a 0.2% gain for the week.