indicating that consumer spending and the US economy are growing too quickly for the Federal Reserve to be comfortable with. Despite obstacles like the continuing UAW strike against Ford, General Motors, and Stellantis as well as the start of student loan payments, this is the case retail sales.
As Treasury yields increased, the S&P 500 opened lower, but later rose again.
The Commerce Department reported on Tuesday that retail sales increased 0.7% in September over August. The best growth since January, that was more than double the 0.3% consensus projection. When vehicles and petrol are excluded, retail sales increased by 0.6%. Gains of 0.2% and 0.1% were anticipated for those two metrics by economists.
Retail Sales
In the meantime, the 0.6% increase in retail sales for August was revised up to 0.8%. The ex autos reading was similar. Sales outside of the car and petrol industries were revised up from 0.2% to 0.3%.
Although there are grounds to think that growth may decelerate in Q4, the data imply that the economy is still expanding faster than the Federal Reserve would like in order to reduce inflation.
Treasury yields and the S&P 500 React
The S&P 500 experienced a significant initial decline following the retail sales report, but it ended Tuesday’s stock market activity flat. The yield on the 10-year Treasury increased by 14 basis points to 4.85%.
The S&P 500 increased 1.1%, rising back over its 21-day moving average but below its 50-day line nonetheless.
On Monday, the yield on a 10-year Treasury bond increased by 8 basis points to 4.71%. On October 6, the 10-year yield reached a 16-year high of 4.89%.
Following the retail sales report, the likelihood of a Fed rate hike on November 1 increased from 6.7% to 9.4%. Chances of a rate increase on December 13 increased from 35.3% to 43.6%.
Rising Treasury yields are acting as a damper on the economy, which is a major reason why odds of a Fed rate hike aren’t greater.
repayment for student loans
Approximately $1.7 trillion in federal student loans come due for the first time in October, while Treasury data indicated that payments had already begun to increase in August. Other spending will be hindered by the loan repayments.