US stock markets traded lower in afternoon trading as investors awaited quarterly results from major retailers to gauge US consumer health, with the S&P 500 falling 0.52% to 7,745.06, the Dow Jones Industrial Average down 0.51% to 53,459.78, and the Nasdaq Composite declining 0.32% to 26,644.91. At 2:15 p.m. ET, the Dow Jones Industrial Average fell 263.21 points, or 0.51%, while the S&P 500 lost 39.55 points, or 0.52%, and the Nasdaq Composite lost 76.87 points, or 0.32%. Declining issues outnumbered advancers by a 1.7-to-1 ratio on the NYSE where there were 213 new highs and 176 new lows, while on the Nasdaq, 1,834 stocks rose and 2,921 fell as declining issues outnumbered advancers by a 1.59-to-1 ratio. The S&P 500 posted 19 new 52-week highs and 4 new lows while the Nasdaq Composite recorded 79 new highs and 100 new lows. All three indices closed higher for the last three weeks, with the S&P 500 notching a fresh all-time high on Friday, but on Monday, the tech-heavy Nasdaq closed about 1.3% below its most recent record close.
Oil prices rose to near 3-week highs as investor pessimism about diplomatic efforts to resolve the Iran war fanned global supply worries, with Brent Crude settling near $91/bbl and West Texas Intermediate surging to new highs above last week's levels. Last month alone, Brent zigzagged between $72 and $102 as hopes rose and fell that the United States and Iran could reach a deal that would allow oil tankers to freely exit the Persian Gulf again. The ceasefire between the United States and Iran also expired on Monday, with negotiations stalled between the two sides, as a senior Iranian official told Reuters that Tehran would shift to an offensive posture if diplomacy with Washington fails. Taking to Truth Social, US President Donald Trump said, "The number one goal is, and always will be, that Iran cannot have, in any way, shape or form, a nuclear weapon," signalling continued tensions. Mondays rally for oil prices sent Treasury yields in the bond market higher which in turn raised the pressure on the economy and prices for all kinds of investments. With oil prices remaining elevated and Natural gas prices already close to their highs for the year, the message from the energy market is therefore fairly clear: The risk of a prolonged disruption to energy supplies remains significant.
The 30-year Treasury yield climbed to its highest level since 2007, creating significant headwinds for investors as the long end of the Treasury curve bears down on equity valuations. The bear-steepening of the yield curve, with long-end yields rising much faster than the front end, signals that the market is questioning whether current monetary policy is sufficiently restrictive relative to inflation, fiscal and nominal-growth risks. The combination of oil above $90/bbl and long-bond yields at 2007 highs matters far more for equities than either factor in isolation, as oil keeps the inflation discussion alive while the long bond keeps the cost-of-capital discussion alive. When yields are low, investors are willing to pay generously today for earnings that may arrive several years down the road, but as the long end moves higher, the market starts sharpening the pencil and future cash flows are discounted more aggressively. The timing is particularly challenging as retail sales have already started to lose momentum, so higher energy costs are arriving just as the consumer begins to show signs of fatigue. US yields on the 30-year bonds have now risen to 5.337%— its highest level in almost TWO decades, while Japan's 10-year yield has also moved close to 3%, a level not seen since the mid-1990s.
The Nasdaq 100 has fallen below 30,000 and 29,850, with 29,180 and 28,190 emerging as the next key support levels. The index has turned lower after again failing to hold sustainably above the 30,000 level, with a bearish trend line also offering resistance. With the next support at 29,850ish also taken out, this will now be the first level of resistance to watch in case we see a rebound. The next support is at 29,180ish, a prior resistance level, and below that we could see a more meaningful drop, possibly towards 28,190ish. US index futures were flat by midday London, a day after taking a noticeable dip, with US indices having so far dropped in each of the past three days of this week. The overcrowded AI trade is losing momentum as yields press higher, with the sell-off in bond markets accelerating yesterday before easing a bit. For equities, the combination of higher energy costs and higher long-term borrowing costs is becoming increasingly uncomfortable, with the overcrowded AI trade losing momentum as yields press higher.
Investors, with July's weak retail sales and jobs data fresh in their minds, were cautious as they waited for quarterly results from retailers including home improvement company Home Depot, due out on Tuesday, and retail bellwether Walmart, due out on Thursday. A report last week said that shoppers surprisingly spent less at U.S. retailers last month than in June and CEOs for retailers could give color this week on what they're seeing. "Concerns about recent softer data have the market being a bit tepid and waiting for retail earnings for direction," said Phil Blancato, chief market strategist at Osaic Wealth, who added that volume is often weak in August, when many traders take vacations. "There's a combination of summer doldrums and waiting for data on the consumer," he added. Traders will also eye more clues on the state of the consumer with earnings from Walmart Inc., Home Depot Inc. and Target Corp. in the coming days, especially after US retail sales fell by the most in more than a year last week. The release this week of the Federal Reserve's latest meeting minutes may provide a catalyst for investors, allowing traders "to get a better understanding of the Fed's behavior in a lower communication environment," according to JPMorgan strategists. The relatively light macro data week could mean the "positive tech inertia" may continue into Nvidia Corp.''s earnings next week, according to the strategists. Household incomes could come under greater strain after US employers unexpectedly eliminated more jobs than they created last month, while consumers continue to face rapidly rising costs as inflation remains well above desired levels.
