US Stocks Decline After Strong Retail Sales Data: Markets Wrap

US stocks experienced a decline as traders reacted to robust retail sales data and prepared for the upcoming Federal Reserve's interest rate decision and economic projections.

Market Overview

The S&P 500 index and the Nasdaq 100 both dropped by 0.5%. In the bond market, yields on 10-year Treasuries remained steady at 4.40%. Similarly, the Bloomberg dollar index showed no significant movement.

Retail Sales Insights

Retail sales in the US rose significantly in November, reinforcing the notion of strong consumer spending during the vital holiday shopping period. This positive data reflects the resilience of consumers despite broader economic concerns.

Looking Ahead to the Fed Meeting

Analysts, including Ian Lyngen from BMO Capital Markets, indicate that the retail sales report is unlikely to change expectations for the Federal Open Market Committee (FOMC) meeting. A consensus predicts a quarter-point rate cut, with further discussions focused on potential pauses in 2025.

Traders are particularly interested in what Fed Chair Jerome Powell will communicate regarding future rate adjustments. The retail sales data could bolster calls for a pause in rate cuts in January, according to E*Trade's Chris Larkin.

Economic Data and Concerns

On another note, industrial production data showed a decline for the third consecutive month in November, raising concerns about the manufacturing sector. Meanwhile, in Canada, inflation fell below the Bank of Canada's target for the second time in three months, suggesting that rapid rate cuts have not negatively impacted their inflation control efforts.

Global Market Reactions

Internationally, markets responded to UK wage growth, leading traders to adjust their expectations regarding potential Bank of England rate cuts. The likelihood of three quarter-point cuts in 2025 dropped significantly from 90% to around 55% as a result of this new data.

Elsewhere in Asia, the index of Asian currencies reached a two-year low amid worries about China's economic performance, exacerbated by anticipated monetary policies from the incoming Trump administration.

Oil and Commodity Prices

Concerns about China’s economic situation have led to a slight decline in oil prices for a second consecutive day, affecting demand outlooks in the market.

Key Upcoming Events

Investors should brace for a busy week with the following scheduled events:

• UK Consumer Price Index (CPI)
• Eurozone CPI
• US interest rate decision
• Japanese rate decision
• UK Bank of England rate decision
• Revised US GDP
• Japanese CPI
• Chinese loan prime rates
• Eurozone consumer confidence
• US personal income and spending along with PCE inflation

Market Movements

Some noteworthy market movements included:

• The S&P 500 dropped 0.5% as of early trading
• The Nasdaq 100 also declined by 0.5%
• The Dow Jones Industrial Average experienced a similar 0.5% decrease
• European market indicators fell by 0.5%
• The MSCI World Index saw a decrease of 0.4%

Currency and Bond Markets

The currency market showed little change overall, with the Bloomberg Dollar Spot Index remaining stable, and both the euro and British pound showing minor fluctuations. In bond markets, Germany's 10-year yields fell slightly, while Britain's rose.

Closing Thoughts

As traders and investors prepare for possible adjustments from the Federal Reserve, the overall economic landscape continues to evolve, influenced by consumer spending, industrial performance, and global market conditions.

US, stocks, retail