US equities were modestly higher to start the session, with the Nasdaq 100 edging up while the Dow slipped, as investors weighed softer US consumer data against continuing support from recent inflation prints. Futures pricing also reflected a lower probability of a September Federal Reserve rate hike after weak retail sales and consumer sentiment reports, though Treasury yields rose slightly on persistent inflation concerns.
Key takeaways
- Index performance: The S&P 500 gained about 0.02%, the Dow fell about 0.08%, and the Nasdaq 100 rose about 0.15%.
- Catalyst: Odds of a September Fed hike fell to 29% from 35% after July retail sales and preliminary August consumer sentiment came in weak.
- Rates reaction: The 10-year Treasury yield rose roughly 1 basis point as inflation worries remained, despite the softer growth signals.
- Implication for investors: Markets are balancing cooling demand data with sticky price concerns, keeping policy expectations sensitive to each new economic release.
What drove the move
Stocks found support as traders repriced the likelihood of near-term Fed tightening. The shift followed a weak set of US consumer indicators: July retail sales fell 0.6% month over month, worse than expectations for a 0.1% increase. Ex-autos and gas retail sales declined 0.2% month over month, also below expectations.
Investors also reacted to the University of Michigan’s preliminary August consumer sentiment index, which declined 4.2 points to 51.0, versus expectations for a smaller drop. The report underscored that consumers may be pulling back amid elevated prices, higher gasoline costs, and weaker confidence in household finances.
Market reaction and what it signals
Despite the softer demand backdrop, bond markets showed continued sensitivity to inflation. The 10-year Treasury yield rose about 1 basis point, and market-implied inflation expectations (as measured by 10-year breakeven inflation) rose to 2.271%. That combination suggested investors were less convinced that disinflation alone would be enough to eliminate inflation risk.
Shorter-dated yields moved lower, supported by the weaker retail sales data, with the 2-year Treasury yield falling roughly 1.3 basis points. Still, the rise in longer-end yields pointed to ongoing uncertainty about the pace of inflation progress and how the Fed may respond.
On the equity side, technology shares received some positive carryover from overnight strength abroad, including a rally in South Korea’s KOSPI that lifted major names such as Samsung Electronics and SK Hynix. In the US, however, chip-related sentiment was more mixed, with the iShares Semiconductor ETF up about 0.2%.
Earnings outlook and sector-specific drivers
Investors also continued to position around the earnings calendar. The S&P 500 was tracking for roughly 32% expected earnings growth in the second quarter, according to Bloomberg Intelligence—well above an approximately 23% projection cited for the period. The same source indicated that AI-related spending is expected to be a major contributor to earnings-per-share growth, with AI infrastructure stocks projected to account for a large share of gains.
So far, early results appeared to reinforce that optimism. Bloomberg data showed 85% of the 446 S&P 500 companies that had reported second-quarter earnings had beaten estimates, supporting the broader view that corporate profits may remain resilient despite softer consumer data.
Rates pricing, commodities, and global tape
Markets were discounting a 29% chance of a 25 basis point rate hike at the next Federal Open Market Committee meeting on September 15–16, down from 35% on Thursday and 51% earlier in the week. The repricing reflected the new inflation-and-growth balance investors are trying to strike.
In commodities, West Texas Intermediate crude was little changed. Overnight support came after reports that two Abu Dhabi oil vessels were attacked by Iran while transiting the Strait of Hormuz. Even with that geopolitical risk premium, oil prices remained below Tuesday’s two-week high as investors focused on US strategy shifting toward economic pressure rather than additional military action to force full reopening of the Strait.
Overseas markets were higher, with the Euro Stoxx 50 up about 0.18% and Japan’s Nikkei 225 gaining roughly 0.59%. China’s Shanghai Composite closed slightly higher.
What to watch next
With policy expectations still moving in response to each data release, investors will likely track upcoming economic prints for confirmation of whether consumer weakness is translating into sustained cooling in inflation. The next major focal points remain the Federal Reserve meeting on September 15–16 and the flow of second-quarter earnings results, alongside continued developments around energy shipping risks in the Strait of Hormuz.
