Wall Street traded lower after data showed a softer consumer backdrop, pushing back expectations for near-term Federal Reserve tightening even as concerns about inflation lingered. The S&P 500 fell 0.05%, the Dow Jones Industrial Average slipped 0.15%, and the Nasdaq 100 declined 0.06%, with September E-mini futures also pointing to a cautious open. Treasury yields remained a focal point, rising despite the weak retail sales and consumer sentiment releases.
Key takeaways
- Price move: Major U.S. equity benchmarks edged down, including the S&P 500 (-0.05%) and Nasdaq 100 (-0.06%).
- Catalyst: July retail sales fell and the University of Michigan preliminary consumer sentiment index dropped, weakening the near-term growth outlook.
- Rates implication: The 10-year Treasury yield rose, keeping pressure on equities by signaling inflation worries are not fully fading.
- Corporate earnings support: Expectations for strong second-quarter earnings growth—particularly driven by AI-related spending—remain a key offset.
- What to watch: Investors will monitor upcoming Fed communication and further inflation data for confirmation on the rates path.
What drove the move
Stocks pulled back from earlier gains as U.S. retail sales and consumer sentiment came in weaker than expected. According to the data cited, July retail sales declined 0.6% month over month, compared with market expectations for an increase of 0.1%. Sales excluding autos and gasoline fell 0.2% month over month versus a projected 0.3% gain.
The report added that part of the month-to-month weakness reflected technical effects: June sales were temporarily supported by World Cup spending, and Amazon’s Prime Day occurred in June rather than July compared with the prior year. Even with that caveat, the weak headline trend reinforced the view that consumers may be stepping back amid high prices, higher gasoline costs, and concerns about personal finances.
Consumer sentiment also deteriorated. The University of Michigan preliminary August index fell 4.2 points to 51.0, under expectations for only a modest decline to 55.0 from July’s reading of 55.2.
Why rates and inflation fears still mattered
While the weaker demand data reduced the odds of a September rate hike, inflation-linked risk remained prominent in bond markets. The report said the probability of a September Fed rate increase dropped to 29% from 35%—but the market simultaneously became more concerned about the possibility of a softer economy and potentially weaker corporate earnings.
At the same time, the 10-year Treasury yield rose by about 3 basis points to 4.674%, despite the weak economic releases. The report attributed the push in yields to ongoing inflation worries. It also cited that 10-year breakeven inflation expectations moved higher to 2.272% and that University of Michigan expectations showed one-year inflation at 4.3% (up from 4.2% in July), with five- to 10-year inflation unchanged at 3.3%—still above the Fed’s 2% target.
Bond-market pressure extended beyond the U.S. The German 10-year bund yield rose to 3.195%, and the UK 10-year gilt yield moved up to 5.016%, with the report noting markets are pricing an ECB rate hike ahead of the September 10 policy meeting.
Earnings backdrop and sector moves
Despite the macro headwinds, investors continued to weigh a supportive earnings outlook. According to Bloomberg Intelligence, the S&P 500 is tracking for near 32% earnings growth in the second quarter, compared with projections of about 23% and described as well above the average growth rate outside of the COVID period since 2013. The report said AI spending is expected to account for most of earnings, with AI infrastructure stocks contributing nearly 60% of second-quarter S&P 500 earnings-per-share growth.
On reported results so far, the report cited that 85% of the 446 S&P 500 companies that had posted second-quarter earnings beat estimates, based on Bloomberg data.
In equities, tech and semiconductors were mixed. The report said U.S. technology stocks received carry-over support from an overnight rally in South Korea’s Kospi index—where Samsung Electronics and SK Hynix gained more than 15% this week—but chip-related names were weaker in the U.S. today, with the iShares Semiconductor ETF trading mildly lower. It also pointed to declines in several major semiconductor and equipment names, including Broadcom and Applied Materials, while other names were up.
Notable company-specific moves included:
- Applied Materials: Despite delivering above-consensus guidance, it was trading down more than 4% as investors reportedly did not see a sufficient upside relative to elevated AI expectations.
- SanDisk: The stock rose more than 7% after JPMorgan assigned an overweight rating following the company’s investor day.
- Reddit: Shares gained more than 13% after news that the company will be added to the S&P 500 before the Aug. 18 open in an off-cycle change.
- Dronemakers: Stocks moved higher after the administration said it would apply a 100% tariff on imported drones and drone components.
Commodities, geopolitics, and overseas trading
Oil prices were supported but volatile. September WTI crude futures were up about 0.7% after reports of attacks on two Abu Dhabi oil vessels by Iran while the ships moved through the Strait of Hormuz. The report also noted that crude is still off from Tuesday’s two-week high, as the Trump administration is described as shifting toward economic pressure rather than additional U.S. military action.
On the geopolitical front, the report said there were no signs of progress toward a U.S.-Iran agreement to fully open the Strait of Hormuz. It cited an Iranian military spokesperson’s view that no ship can safely pass without Iran’s authorization and supervision, responding to comments from President Trump about U.S. control of the passage.
Overseas markets were steady to higher in the session described. The report said China’s Shanghai Composite closed up 0.01%, Japan’s Nikkei gained 0.59%, while the Euro Stoxx 50 was little changed.
Investors will likely focus next on whether bond yields continue to rise or stabilize as traders interpret inflation data and consumer demand. With the report noting markets are pricing a roughly 29% chance of a 25-basis-point rate hike at the next FOMC meeting on Sept. 15-16, attention will also turn to upcoming Fed commentary and additional economic data that could further clarify the trajectory for both rates and earnings.
