Market Insights

Stocks declined for a third week as investors grappled with a surging U.S. economy and spreading weakness in China.

The S&P 500 slid 2.1 percent between Friday, August 11, and Friday, August 18. More than 90 percent of the index’s members lost value, including every major sector. Interest rates continued to rise.

U.S. retail sales increased by almost twice the forecast amount in July (its third straight beat), while industrial production rose at triple the expected pace. Initial jobless claims and housing starts also surprised to the upside. That dispelled hopes of lower interest rates anytime soon.

“Upside risks to inflation … could require further tightening of monetary policy,” the Federal Reserve said in minutes from its last meeting.

Bond traders reacted by sending yields on 10-year Treasury notes back to their peaks from October, near 15-year highs. Mortgage rates also climbed to levels last seen in 2002.

The opposite thing is happening in China, where retail sales and industrial production missed estimates by a wide margin. One major developer (Evergrande) went bankrupt, while other (Country Garden) moved to delay interest payments. The People’s Bank of China responded by unexpectedly cutting interest rates.

The news starkly highlights changes in the global economy as the U.S. reindustrializes and China decelerates. Decades of globalization could be going into reverse, impacting trillions of dollars in trade and debt.

Tesla Tumbles

Every major sector fell last week. Consumer discretionaries led to the downside as Tesla (TSLA) had its biggest drop since March. The electric-vehicle maker lowered prices for some cars. It also has potential risk in China, which accounts for more than a quarter of its revenue and much of its expected future growth.

Financials struggled as higher Treasury yields reminded investors of conditions that triggered bank runs in March. Discover Financial Services (DFS), in particular, fell after its CEO resigned and credit-card delinquencies rose. Fitch Ratings also warned it may lower credit ratings on banks including JPMorgan Chase (JPM).

Solar energy and Chinese stocks also declined sharply. Clean energy continued to struggle with weaker demand. Gold miners slid as higher interest rates reduced the appeal of precious metals. Airlines, which are sensitive to higher interest rates because of their debt loads, fell. Homebuilders had their biggest weekly drop since September.

Technology fared the best as analysts issued bullish notes on Nvidia (NVDA) before its quarterly report on Wednesday.

Metals eked out a small gain after Cleveland Cliffs (CLF) moved to acquire U.S. Steel (X). The transaction would unite two businesses with 324 years of combined history.

Charting the Market

Last week’s pullback landed the S&P 500 at its lowest level since late June. The decline came after the index tried and failed to hold its June high around 4450. Traders may next eye roughly 4328, which was near a weekly low on June 26 and the peak from August 2022.

Attention is also likely to focus on Treasury yields given the strong economy and recent Fed rate hikes. The 10-year note’s yield ended last week near its high from October — four months after holding its June 2022 high. Further upside in the yield could draw money away from equities and raise concerns about stock-market valuations. (A similar process occurred in the bear market of 2022.)

Cboe’s volatility index (VIX) is another potentially important chart because it typically moves in the opposite direction as the S&P 500. The VIX has climbed since late July. It’s also back above the potentially important 15 level.

The Week Ahead

This week brings the last big group of quarterly earnings. Fed Chair Jerome Powell also speaks on Friday, which could be a major event.

Nothing important is scheduled for today.

Lowe’s (LOW), Macy’s (M) and Baidu (BIDU) issue results tomorrow. Existing home sales are also due.

Wednesday features new home sales and crude-oil inventories. Nvidia (NVDA), the most important earnings report, is scheduled for the post market.

Initial jobless claims and durable-goods orders are on Thursday morning. Dollar Tree (DLTR), Gap (GPS) and Ulta Beauty (ULTA) are some of the big quarterly reports.

Powell speaks on Friday at 10:05 a.m. ET from the Fed’s symposium in Jackson Hole, Wyoming.