Stocks opened in the red this morning on a number of trending news items. Why are stocks down today?
Well, it seems some concerning news out of China is pushing stocks down right now. Indeed, China initiated surprise policy rate cuts Tuesday, the second time in just three months. This has reignited fears that the country will experience more growing pains than expected in its post-Covid economic recovery.
The world’s second-largest economy has been marred by a slew of credit, real estate and default-related road bumps as it attempts to return to its previous red-hot pace of economic growth.
Interestingly, that’s not the only news item out of China today. On Tuesday, China also announced that it will stop releasing youth unemployment data, which recently hit an all-time high of 21.3% in June. The youth unemployment figure refers to the nearly 100 million people aged between 16 and 24 looking for work. At 21.3%, China’s last (and seemingly final) youth unemployment gauge is more than four times the overall jobless level in the country.
Why Are Stocks Down Today?
China’s recent troubles seem to have overshadowed seemingly optimistic U.S. economic data. This morning, the U.S. Commerce Department released advanced monthly Retail and Food Services data for July.
Retail sales climbed 0.7% in July, compared to the month prior, beating Wall Street estimates for 0.4% growth. Sales excluding auto and gas increased an entire percentage point as well. E-commerce sales led the sales categories, jumping a staggering 1.9% from June. At the same time, June sales were revised upwards, to 0.3% from 0.2%.
The report has strengthened narratives that the Federal Reserve may actually succeed at executing its long-hinted “soft landing” for the economy. The report also confirms the resilience of the U.S. consumer in the face of one of the fastest rate hike campaigns in history. Some analysts are even cancelling their previous recession forecasts all together.
“Despite the additional pressure put on the Fed, Americans’ sustained ability to spend speaks to the strength of the US economy in the face of global economic challenges,” Mike Loewengart, Head of Model Portfolio Construction at the Morgan Stanley Global Investment Office, told CNBC.
That said, the strength of the consumer will likely prove fuel to the Fed’s hawkish fire. Strong spending may push the central bank to either hold rates at their current elevated level or raise rates even higher. As such, today’s report could be read as a convoluted bearish indicator for stocks, which prefer lower lending rates.
This may explain stocks’ slide today. The S&P 500 and Nasdaq Composite are down 0.7% and 0.6% respectively at the time of this writing, reversing Monday’s gains.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
