The stock market moved slightly higher on Monday despite disappointing economic data out of China leading to rising concerns about a global recession and a drop in oil prices; meanwhile, investors are looking ahead to a big week of retail earnings.
Stocks rose after four straight weeks of gains: The Dow Jones Industrial Average was up 0.3%, around 100 points, while the S&P 500 gained 0.2% and the tech-heavy Nasdaq Composite 0.4%.
Markets were initially lower after weak economic data from China overnight, with the country’s consumer and factory data coming in well below expectations, while China’s central bank also unexpectedly slashed interest rates amid a slowing economy.
As China’s real estate slump and Covid lockdowns continue to weigh on economic growth, investors are growing concerned about what that could mean for the global economy, reigniting recession fears.
Oil prices tanked on Monday as the news out of China raised concerns about a potential demand slowdown: The price of U.S. benchmark West Texas Intermediate fell nearly 4% to $89 per barrel, while international benchmark Brent crude is now trading at over $94 per barrel.
The China data “doesn’t bode well for oil demand especially when the country remains so committed to zero Covid,” says Oanda senior market analyst Craig Erlam, who predicts, “with cases continuing to rise, the downward pressure on oil prices could intensify.”
Investor sentiment also took a hit after the New York Fed’s Empire State Manufacturing Survey showed a sharp decline in manufacturing activity for August, with a reading of –31.3, the lowest since May 2020.
Stocks recently posted their fourth positive week in a row last Friday, with the S&P 500 notching its best run since last year. The benchmark index gained over 3.2% last week amid optimism that inflation is cooling and may have peaked finally, while the Dow and Nasdaq rose 2.9% and 3.1%, respectively. Markets have rebounded from their low point on June 16: The S&P 500 was down roughly 20% for the year at the time, but has since pared back losses, down just 11% for 2022 so far.
Stocks initially struggled after the “underwhelming” economic data from China, says Vital Knowledge founder Adam Crisafulli, though the “ugly” Empire Fed survey is also a cause for concern, he adds. In what was the second largest monthly decline in the index on record, the New York Fed survey is certainly a “net negative as it points to a sharp softening in growth momentum but stubborn inflation readings.”
What To Watch For:
Investors are looking ahead to a big earnings week in which several major retailers including Home Depot, Lowe’s and Walmart will all report quarterly results. U.S. retail sales data for July is also due on Wednesday.