By Joyce Yu
Philadelphia, PA–Wall street started off the week in negative territory but soon emerged higher, indicating that the market is eager to shrug off last week’s sell-off. But the latest set of economic data is not so helpful. U.S. retail sales barely rose in September as a rebound in motor vehicle purchases was offset by the biggest drop in spending at restaurants and bars in nearly two years, the latest the report from the Commerce Department on Monday showed. The closely watched core retail sales, which exclude automobiles, gasoline, building materials and food services, climbed by 0.5% in September after coming in unchanged in August.
“The net result still appears to be a fairly strong quarter for consumer spending growth,” Jim O’Sullivan, chief U.S. economist at High Frequency Economics in White Plains, New York, told the Reuters.
Andrew Hunter, U.S. Economist at Capital Economics, pointed out however that “sales growth looks most likely to slow in the fourth quarter”, and “we still expect a more marked slowdown in real consumption growth over the course of next year.” The current strong retail spending is driven by wage growth supported by a tight labor market and tax cuts enacted at the start of the year. This boost may start to fade, opined Hunter.
For fears of rising interest rate, U.S. stocks lost nearly 6% in last week’s sell-off, but Goldman analysts said solid fundamentals should keep stock market afloat. In his latest note, David Kostin, the firm’s chief U.S. equity strategist, said “We see limited further downside”, adding that the kind of pullback the market saw last week was common. “Despite the recent sell-off, equity fundamentals are strong and we remain constructive on the path of the S&P 500.”
Last week’s wild volatility started with remarks from central bank Chairman Jerome Powell, who said that the Fed was “a long way” from what it considers an interest rate neither restrictive nor stimulative. Stocks sunk the following day with the steepest slide occurring on Wednesday.
With strong economic growth likely to continue, the Fed is expected to raise interest rate in December for the fourth time this year. Setting year-end target price of 2,850 for the S&P, Goldman is advising clients to focus on growth stocks with strong balance sheets and lower debt levels, thus a better ability to withstand rising interest rates.
