Wall Street witnessed a significant stock decline this Wednesday following positive December U.S. retail sales data, which diminished the anticipation of an early initiation of the Federal Reserve’s campaign to cut interest rates.
Retail Sales Report
The December retail sales report from the Commerce Department (USRSL=ECI) depicted a robust consumer, responsible for approximately 70% of the U.S. economy. Despite facing the challenges of high inflation and a tight monetary policy, the consumer has shown resilience.
The data revealed that discounts offered by retailers and a surge in motor vehicle acquisitions contributed to a greater-than-anticipated increase in U.S. retail sales, maintaining the economy on a robust trajectory in 2024. This bolstered the perspective that the Federal Reserve might not reduce interest rates as rapidly as initially anticipated for the current year.
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Anticipations among traders for a 25-basis-point Federal Reserve rate cut in March declined to 55%, down from approximately 60% before the release of the retail sales data. Ryan Detrick, chief market strategist at Carson Group in Omaha, said:
“We had news that the U.S. consumer continues to be quite healthy, but that has increased anxiety that the Fed’s first rate cut could potentially be pushed to May from March. Yields are also moving higher on the strong retail sales numbers, adding to near-term worries.”
US Stocks And Wall Street
It is also important to mention that a decline in U.S. stocks sent Wall Street’s “fear gauge” to a two-month high while JPMorgan analysts predict that the majority of negative consequences stemming from higher interest rates have not materialized yet. On Tuesday, Federal Reserve Governor Christopher Waller also emphasized that the central bank should refrain from hastily reducing interest rates until there is a clear indication that lower inflation is likely to persist.
At the same time, the escalation of geopolitical uncertainties introduces an additional challenge and heightens the potential for unforeseen risks in both markets and economic performance. Considering these factors, the perspective is likely to stay cautious as long as interest rates remain significantly restrictive and the looming presence of geopolitical risks persists.
