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Stocks Swing at Open as Data Fail to Banish Recession Fears

Investing.com -- U.S. stock markets swung sharply at the opening on Thursday after weaker-than-expected industrial data poured cold water on a market that had appeared ready to rebound on signs that the U.S. consumer is still in good health.

Industrial production and manufacturing output both fell in July, disappointing hopes for a modest increase and focusing participants’ minds on the risks of a recession – the same risk that had handed the market its worst one-day losses in 2019 on Wednesday. Earlier manufacturing surveys from the Empire State and Philly Fed had also pointed to activity weakening, albeit not by as much as feared.

Wall Street had seemed set for a firmer opening after the Commerce Department said retail sales rose by 0.7% in July, more than double the 0.3% increase expected, and the strongest monthly increase since March.

The figures suggested that private consumption, which is the largest component of the U.S. economy, remains in good shape thanks to historically low jobless levels and steadily rising wages.

The Dow Jones Industrial Average rose 80 points, or 0.3% by 10:05 AM ET (1405 GMT) in response to the data, although that was only a fraction of the 800 points that it shed on Wednesday, its worst day this year.

The S&P 500 rose 9.1 points or 0.3% while the Nasdaq 100 rose 14.5 points or 0.2%.

Analysts were at pains to play down the bond market contortions that had triggered Wednesday’s selling.

Mark Haefele, chief investment officer with UBS, said that the yield curve inversion – in which 10-year Treasury yields fell below 2-year ones – may not be the inevitable herald of a recession that many fear, especially if the Federal Reserve meets expectations by cutting short rates to restore the curve’s normal upward slope.

“Neither does a yield curve inversion indicate it is time to sell equities,” Haefele said in a blog post. “Since 1975, after an inversion in the 2-year/10-year yield curve, the S&P 500 has continued to rally for nearly two years, and has risen by 40% on average until hitting a bull market peak.”

Among individual stocks, there was confirmation of the strong consumption trend at company level: Walmart (NYSE:WMT) shares surged at the open after it reported a stronger-than-expected quarter ending in July. U.S. online sales surged 37% on the year, with the company noting particularly strong growth in grocery sales. Overall sales rose 2.9% in currency-adjusted terms, while operating profit fell due to the incorporation of its Indian acquisition Flipkart.

Elsewhere, General Electric (NYSE:GE) slumped over 6.4% after Harry Makropolos, a whistle-blower famous for exposing the Ponzi scheme of the late Bernie Madoff, accused it of creative accounting to prop up the company’s market value as it wrestles with a major turnaround.

Cisco Systems (NASDAQ:CSCO), meanwhile, fell 7.3% after saying after the bell on Wednesday that its sales growth would slow to a crawl in the current quarter due to slowing business in China and, to a degree the U.K. under the impact of trade disputes and Brexit uncertainties.

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