In a dynamic trading environment, US equity indexes displayed mixed results during midday trading on Tuesday, driven by an unexpected rise in retail sales that complicates the Federal Reserve's decision-making regarding its anticipated policy easing. The S&P 500 index remained relatively stable at 5,631.7.
In contrast, the Nasdaq Composite saw a slight uptick of 0.2%, closing at 17,619.9, while the Dow Jones Industrial Average experienced a marginal decline of less than 0.1%, settling at 41,591.5. Earlier in the session, both the S&P 500 and the Dow achieved new intraday record highs, with the Dow also showing a positive trend prior to midday. Sector performance varied, as energy and consumer discretionary sectors led the market gains, whereas healthcare and consumer staples witnessed declines.
Investors are keenly observing Treasury yields, which predominantly rose, with the 10-year yield climbing 2.6 basis points to 3.65%, while the two-year yield increased by 4.4 basis points, reaching 3.60%. The FedWatch Tool indicated that by Tuesday afternoon, the likelihood of a 50 basis-point rate cut on Wednesday had surged to 61%, an increase from just 34% a week prior.
Conversely, the expectation for a 25 basis-point cut remained at 39%, down from the previous week's 66%. This policy announcement from the Federal Open Market Committee, scheduled for 2 pm ET, marks its last before the upcoming presidential elections on November 5. A separate survey conducted by CNBC revealed that 84% of the 27 industry respondents, including economists, fund managers, and strategists, anticipate that the Federal Reserve will proceed with a quarter-point reduction.
Only 16% predict a half-point drop, indicating that survey participants exhibit less anxiety regarding the economy than trading futures markets, and they seem more convinced that the Fed has the necessary time to implement gradual rate cuts if required. The CBOE Volatility Index, often referred to as the fear gauge, surged by 4.3% to reach 17.87 during the intraday trading session, signaling increased market uncertainty. In additional economic reports, US retail sales recorded a slight increase of 0.1% in August, defying expectations of a 0.2% decline as per a Bloomberg survey, and a prior month increase of 1.1%.
When motor vehicle sales are excluded, retail sales still posted a 0.1% rise, compared with an anticipated 0.2% growth and a 0.4% rise in July figures. Ignoring both motor vehicles and a 1.2% drop in gasoline station sales, retail sales exhibited a 0.2% increase in August, a slight decrease from the 0.4% rise in July. Experts from Morgan Stanley opined, "The retail sales data confirm that spending remains solid, reinforcing our view that the Federal Reserve will implement a sequence of 25 basis point cuts." Meanwhile, Macquarie analysts noted that the Fed's communications would likely remain dovish, irrespective of the extent of the forthcoming FOMC measures. In the industrial sector, US industrial production rebounded impressively by 0.8% in August, outperforming expectations of a 0.2% increase based on a Bloomberg survey and marking a recovery from a downwardly adjusted 0.9% decline in July. On the corporate front, Bank of America Securities upgraded Hewlett Packard Enterprise (HPE) from a neutral to a buy rating, with a revised price target raised to $24 from $21.
Following this upgrade, HPE shares surged by 4.5% during intraday trading, making it one of the leading gainers in the S&P 500 index for the day. Additionally, West Texas Intermediate crude oil futures experienced a significant rise of 2.2%, reaching $71.62 per barrel. In the commodities market, gold prices fell by 0.7%, settling at $2,590.70 per ounce, while silver similarly declined by 0.7% to $30.92 per ounce..