US Stocks Rally as Retail Sales Beat Expectations, Tech Giants Drive Market Gains

Key Highlights:

• S&P 500 climbs as retail sales exceed forecasts.
• Nasdaq and Dow Jones advance, with Dow reaching a new high.
• Microsoft boosts confidence with dividend hike and share buyback announcement.
• Intel shares rise following business restructuring news.

The U.S. Stock market saw an uptick on Tuesday, driven by better-than-expected retail sales data and anticipation of the Federal Reserve’s upcoming policy meeting. The S&P 500 rose by 0.3%, moving closer to an all-time high, while the Nasdaq Composite gained 0.7%, and the Dow Jones Industrial Average increased by 44 points, marking another fresh high.

The S&P 500, Nasdaq 100, and Russell 2000 all advanced, with the Russell gaining 1.1%. Treasury 10-year yields rose by two basis points to 3.64%, indicating cautious optimism. However, Wells Fargo analysts warned that the stock market’s struggles might not be over, citing previous late-summer peaks followed by drawdowns ranging from 5% to 20% in recent years. Simmering economic concerns, geopolitical risks, and uncertainty about artificial intelligence’s near-term prospects could lead to continued volatility, according to Austin Pickle, an investment strategy analyst at Wells Fargo.

Retail sales data showed a surprising 0.1% increase in August, countering predictions of a decline. This resilient consumer spending reassured investors that the U.S. economy remains stable, despite inflationary pressures and elevated interest rates. Notably, online sales contributed to this growth, while certain sectors, such as clothing and furniture, reported slight declines.

Tech giant Microsoft experienced a 1% increase in its stock after announcing a 10.7% rise in its quarterly dividend, now at 83 cents per share. Additionally, the company revealed a $60 billion share buyback plan, signaling confidence in its financial outlook and appealing to investors seeking stability in a fluctuating market.

Intel also performed well, with shares climbing 3.7% after unveiling plans to spin off its foundry business into a separate entity. This move is part of a broader strategy aimed at securing external funding and reinforcing Intel's position in the competitive semiconductor space. Additionally, the Biden administration’s award of up to $3 billion through the CHIPS Act further strengthened Intel's standing in advanced manufacturing and artificial intelligence development.

As the market looks ahead to the Federal Reserve’s rate decision, expectations of a 50-basis-point cut are gaining traction, with current predictions placing the likelihood at 61%. While a rate reduction could help spur corporate earnings, the size of the cut remains a topic of debate. Some experts caution that a larger rate decrease could suggest underlying concerns about the labor market.

The positive retail data comes after a mixed market performance earlier in the week. The Dow Jones hit a record high, while the Nasdaq faced minor losses, particularly in major tech stocks like Apple. Despite this, the S&P 500 is on track for one of its strongest trading weeks in 2024, driven by optimism surrounding potential interest rate cuts.

In addition to tech and retail, the utilities sector has seen significant movement, with investor interest at its highest level since 2008. This trend reflects a shift from cyclical sectors to more defensive positions, as utilities are expected to benefit from increased electricity demand, driven by the rise of AI manufacturing and the broader electrification of the economy.

As the Federal Reserve’s decision draws near, analysts are watching closely to determine whether this could mark the end of its aggressive rate-hike cycle, which began in March 2022. A moderate rate cut could sustain the current market momentum, while a larger reduction might signal deeper concerns about economic stability.

In this uncertain environment, investors are closely monitoring developments in both the retail and tech sectors, which have been instrumental in driving market growth. With companies like Microsoft and Intel demonstrating financial resilience and innovation, and retail sales indicating steady consumer demand, the U.S. stock market is positioned for further potential gains in the face of evolving economic conditions.