• Category: News

U.S. Stocks Rise amid Low Retail Sales and Impending Rate Hikes

U.S. stocks rallied as equities flanked in their largest two-day selloff in at least six weeks. All this happened as retail sales fell and bank stocks rose, bolstering the need to keep interest rates low.

U.S. Stocks Rise amid Low Retail Sales and Impending Rate Hikes

American Express Co., Morgan Stanley and Citigroup Inc. saw their share prices rise by more than 2% following dividend payments and plans to buy back shares, after the Federal Reserve approval. Meanwhile Intel Corp. share prices declined as the chip giant revised its revenue outlook for the first quarter.

On March 12, the Standard & Poor 500 Index rallied by 0.9% up to 2,059.33, following  a loss of 1.9% in the past two sessions, finally going back to its average price where it has been for the past 50 days. At the same time the Dow Jones Industrial Average climbed by 1.1% up to 17,824.32 while the Nasdaq Composite Index climbed by 0.5% .

Donald Selkin, the chief marketing strategist at National Securities in New York said, “I think this is a matter of the bad news is the good news, which is a reversal of what we had in the last week when we got killed. The only place where this is good is in policy because it casts doubt over the surety of interest rates being raised.”

Since the start of the year, there has been growing concern that the Fed Reserve may begin to raise interest rates as the economy strengthens but this has had an adverse effect on equities.

For the first time in three days, the dollar weakened against the euro as investors continue to speculate whether the Fed will retreat from its timing of a rate hike.

Selkin of National Securities in New York added, “This weakness in the market has been due to the strong dollar.”

 

 

Impact of a strong dollar

As the U.S. dollar rallies to a 12-year high against the Euro, American stocks have declined by 2.7% since the start of March, as investors anticipate lower earnings growth this year. In particular, the increasingly strong dollar has had an adverse effect on technology companies, as the foreign currency loses its value when it returns to the U.S.

Within the S&P 500, technology is the largest industry accounting for up to 19.3% of the index’s income in the last year.

Intel stock fell by 4.3%, its lowest level since October, as the company cut back on its profit outlook for the first quarter following lower demand from corporate clients and weaker economic performance, especially in Europe.

While technology stocks declined, banks rose with all 10 categories on the S&P 500 gaining. Financial and consumer companies rose by 1.4% while utility companies rallied by 1.7 %.

Morgan Stanley rose by 4.4% while American Express and Citi Bank stocks rose 2% and 3.1% respectively.

 

 

Market impact

The primary reason why the dollar is strengthening is that in the past couple of sessions, the markets have increasingly traded poorly as investors anticipate Fed interest hikes as a certainty.

Evidentially, investors should be looking out for bank stock that are presently on a significant rally. Following the Fed stress test on March 11, all the large U.S. banks passed, which saw bank stocks on the rise.

Market analysts warn that investors will continue to sell their U.S. stock until a high-volume resistance level is attained. Even then, savvy bull investors will stick around to buy as stocks rebound to their average or close to average prices.

 

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