For the second consecutive week, the number of Americans filing for unemployment benefits decreased, while July’s retail sales displayed solid growth. These two data releases on August 15th seemed to alleviate investor concerns regarding an impending recession. Consequently, Wall Street opened on a positive note, with the benchmark 10-year U.S. Treasury note experiencing a significant rise in yields.
Furthermore, continuing jobless claims, indicating the number of Americans continuing to receive unemployment benefits after initially filing a claim, also declined by 7,000, reaching 1.864 million. This decline contributes to the belief that the labor market may surpass expectations and avoid a severe downturn, despite the Federal Reserve’s policy of maintaining high-interest rates, which has cooled the economy and resulted in increased unemployment rates.
On Thursday, additional data supported the notion of a soft landing. Retail sales in July witnessed the highest increase in one and a half years. This positive outcome reassured investors following a disappointing jobs report on August 2nd, which revealed an unemployment rate spike to a nearly three-year high of 4.3 percent. The retail sales growth of 1.0 percent on a monthly basis exceeded analysts’ forecast of 0.4 percent.
Thanks to Thursday’s encouraging data on retail sales and jobless claims, Wall Street’s primary indexes experienced an upward surge, as investors moved away from bonds and opted for riskier stock investments. Around 3:30 p.m. on Thursday, the benchmark S&P 500 Index rose by 1.66 percent, the Dow Jones Industrial Average traded 1.43 percent higher, and the Nasdaq Composite increased by 2.4 percent.
These shifts in bond and stock markets indicate a shift away from the risk-off sentiment that dominated following the disappointing jobs report on August 2nd. It led to a sell-off of risky assets like stocks, prompting investors to seek the relative safety of U.S. Treasurys.
The positive labor market and retail sales data on Thursday also influenced expectations regarding interest rate cuts. The majority of investors now anticipate three cuts of 25 basis points each by the end of this year.