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THE GIST (“THE WHAT”)
Upbeat retail earnings by Target and Lowe’s underscored the strength in the U.S. consumer economy, easing recession jitters and lifting the S&P 500 index solidly higher at the open. Clinging on to early gains, the index chopped within a very tight range as investors eagerly awaited the release of Fed’s latest policy meeting minutes.
The spread between the closely-watched 2-year and 10-year Treasury yield once again inverted for the second time this month after the Fed’s minutes release, flashing signs of recession. Reaction to the Fed’s minutes within the index was mostly muted as optimism about the health of the U.S. economy outweighed concerns of inverting yield curve. Led by Consumer Discretionary stocks, the index closed with modest gains at 2924.43, up 23.92 points and gaining a modest 0.82% over previous session’s close.
THE DETAILS (The “How & Why”):
Target Corp. sparked optimism that the U.S. consumer segment continues to remain strong. The retailer ballooned 20.43% on beating second-quarter top and bottom estimates and providing a rosy outlook for the fiscal year. Lowe’s Cos. further fueled optimism after the home improvement retailer mirrored its rival Home Depot Inc.’s strong earnings on the back of solid same-store sales growth despite lumber price deflation and impact from China tariffs.
Nordstrom, Kohl’s Corp, TJX Companies and Gap Inc. were the other strong gainers within the Consumer Discretionary space, all jumping more than 3% apiece and lifting the broader sector solidly higher by 1.83% to the best performing sector of the session.
Meanwhile, investors digested the minutes from the Fed’s latest policy meeting which indicated that while there was no consensus around the rate cut decision, most members viewed July’s first-time-in-a-decade rate cut as a ‘mid-cycle adjustment’ rather that a start of an aggressive monetary easing cycle.
Treasury yields mostly traded in the positive territory following stronger-than-expected existing home sales for the month of July. The short-term 2-year Treasury yield however, edged up after Fed’s minutes release on concerns that the central bank might not go aggressive on rate cuts in the wake of strong economic data that underscores a robust consumer segment and a tight labor market.
The bond market once again flashed a recession warning as the closely-watched spread between the 2-year and 10-year Treasury yield inverted for the second time this month. The index pared gains alongside choppy yields, but gained steam late session as optimism over a stronger consumer outweighed recession jitters.
Technology stocks added to the day’s strong gains, closing broadly higher by 1.18%. Big cap Apple Inc. and Microsoft Corp. gained more than 1% each. Alliance Data Systems Corp was another major gainer within this space, up sharply by 5.60%. Advanced Micro Devices Inc., Arista Networks Inc., Broadcom Inc. and Qorvo Inc. all jumped more than 2% apiece.