Retail Surge Shakes Stocks, Eyes on Upcoming Tesla and Netflix Earnings

The US stock market witnessed a strong selloff after the latest sales data, but most stocks ended the day closer to the open price. The US Retail Sales and Core Retail Sales data read almost three times higher than the market’s previous expectations. As a result, the stock market took a tumble, potentially due to the higher possibility of rate hikes. In addition to this, investors remain cautious of the political situation. However, the hotter Retail Sales data also indicates high consumer demand and a resilient economy. Economists can consider this positive for the stock market, especially during earnings season. 

The NASDAQ and SNP500 depreciated, while the Dow Jones rose in value. This is due to pressure from the latest planned restrictions. Stocks related to chips, including Nvidia and Advanced Micro Devices, struggled in the session after the U.S. Department of Commerce announced plans to tighten restrictions on sales of advanced artificial intelligence chips to China. NVIDIA stocks are down more than 6% if the after-hours price movement is included. This largely contributed to the NASDAQ declining 1.58% before the asset formed a correction. 

NASDAQ

The NASDAQ during this morning’s pre-market hours, the NASDAQ is trading 0.23% lower and continues to experience pressure from the chip-making sector. In addition, investors have preferred to concentrate their funds on the Dow Jones and SNP500, which are deemed lower risk and positively influenced by the recent positive earnings data. However, companies within the NASDAQ will also release quarterly earnings reports after today’s market close. 

NASDAQ 30-Minute Chart on Octobe 18th

As mentioned and analysed as part of yesterday’s market analysis blog, Tesla and Netflix will be the first to release their quarterly earnings reports. The two stocks makeup 4.5% of the index and can support the index’s value if the data is higher than expected. Netflix declined by 1.40% during the previous trading session, while Tesla stocks were among the only stocks holding onto its value. 

Some economists have advised the market may have exaggerated the effect the sales data will have on interest rates. Economists still believe the chances of further interest rate hikes are unlikely unless inflation rises further. Nonetheless, the retail sales data reaction shows that some investors believe it increases the chances of another hike before the end of this year, even though several members of the regulator board are against it. Yesterday, the president of the Philadelphia Federal Reserve Bank, Mr. Harker said that pressure in the economy should not be created by raising the cost of borrowing. 

Nevertheless, the employment growth, the slowdown in the rate of decline in inflation, and now a severe increase in retail sales indicate that the risks of growing consumer prices remain, which makes raising interest rates all the more necessary. In regard to this, investors will also continue monitoring the price of Crude Oil, which has risen by 7% over the past two weeks. If the price of Crude Oil again rises above $90 per barrel, the sentiment amongst shareholders can take a hit. This evening, investors will also scrutinise the Federal Reserve President’s speech. Any forward guidance on interest rate alterations can trigger further breakouts and volatility. 

Crude Oil 

As mentioned above, the price dynamics of oil will also affect the future prospects of interest rate hikes. Therefore, it can influence both the US Dollar, Canadian Dollar, stocks and Gold. Yesterday, the situation around the Palestinian-Israeli conflict escalated again after a hospital was bombed within the Palestinian territory. At the moment, Israel and the Arabic-speaking countries are accusing each other of a deliberate attack. Markets fear new participants will be drawn into the conflict, inevitably damaging oil supplies. On Wednesday, US President Joe Biden is due to visit Israel, who will probably try to soften the situation and contribute to further de-escalation of the conflict. The outcome of these meetings can also influence the price of Crude Oil.

Crude Oil 1-Hour Chart on October 18th

Summary:

• The US Retail Sales and Core Retail Sales data read almost three times higher than the market’s previous expectations.
• The NASDAQ and SNP500 depreciated, while the Dow Jones rose in value. This is due to the US announced plans to tighten restrictions on advanced artificial intelligence chips sent to China
• Tesla and Netflix will be the first to release quarterly earnings reports. The two stocks makeup 4.5% of the index and can support the index’s value if the data is higher than expected.
• The Palestinian-Israeli conflict escalated again after a hospital was bombed within the Palestinian territory. As a result, the price of oil rose.