(Bloomberg) — US stocks stepped back from record highs on Friday as consumer sentiment fell for the first time since April.
The S&P 500 Index closed down 0.3% in New York, pulling back from prior levels. The Nasdaq 100 Index fell 0.5%, while the Dow Jones Industrial Average advanced 0.1%.
The preliminary sentiment index for August dropped to 58.6 from 61.7 a month earlier, according to data from the University of Michigan that signaled concern President Donald Trump’s tariffs are likely to worsen inflation. Consumers expect prices to rise at an annual rate of 4.9% over the next year, more than economists had predicted.
“The inflation expectations component of the consumer confidence data was much higher than expected,” said Miller Tabak’s Matt Maley. “When you combine this with the much lower headline number, it renews concerns about stagflation. So, it’s not a surprise that investors are taking some profits today.”
Bill Adams, chief economist at Comerica Bank, said the consumer appears “mixed” so far in the third quarter. “While the data don’t all point in the same direction, the US economy looks to be in okay shape in the third quarter,” Adams said. “What consumers do is more important to the economy than what they say.”
Earlier data showed US retail sales rose in July in a broad-based advance, boosted by car sales and major online promotions. The value of retail purchases, not adjusted for inflation, increased 0.5% after an upwardly revised 0.9% gain in June, according to Commerce Department data released Friday. Excluding cars, sales climbed 0.3%.
Following the “explosive” PPI data on Thursday, Board’s Michelle Green said the retail sales confirm that costs are being successfully passed onto consumers.
“For equities, this creates a margin compression story: consumer-facing companies may sustain top-line growth, but rising input costs will pressure profitability, particularly in goods-heavy sectors,” Green said. “With 4.2% unemployment providing no justification for rate cuts, the Fed’s higher-for-longer stance becomes increasingly likely, keeping discount rates elevated and putting sustained pressure on valuations.”
Next week, investor focus will shift from economic data to the US central bank’s annual symposium in Jackson Hole, Wyoming, where Chair Jerome Powell is scheduled to speak.
Bank of America Corp. strategists led by Michael Hartnett expect US stocks to decline in the event of dovish signals from the Fed at Jackson Hole. A dovish tone from Powell at Jackson Hole could result in stocks sliding as investors “buy rumor, sell fact,” Hartnett said in a note.
Meanwhile, President Donald Trump is set to meet Russian President Vladimir Putin in Alaska for their first summit in seven years. Both leaders have very different measures of success for the talks: the US president wants a ceasefire in Ukraine, while getting face time without making any concessions is already a win for the Russian leader.
Among single stocks, UnitedHealth Group Inc. surged 12% after funds, including Berkshire Hathaway Inc., piled into shares of the troubled insurer. The investments are a welcome reprieve for a company that had seen its stock fall 46% this year.
The stock reaction for UnitedHealth, as well as the broader managed care sector, is likely a reflection of how “beaten down” the space has been this year, according to Daniel Barasa, portfolio manager at Gabelli Funds.
“Overall, I wouldn’t say that this is a definitive signal that the sector has reached a bottom, but it does suggest we may be approaching that point,” said Barasa.
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