U.S. stocks fall despite strong retail sales data as consumer sentiment sags

Good evening, Bull Sheeters. Finance reporter Anne Sraders here, standing in for the last time for Bernhard this week. (Expect him back in your inbox at the regular time on Monday.)

U.S. stock indexes all fell on Friday. After an initial pop on stronger-than-expected retail sales, stocks were dragged down by U.S. consumer sentiment, which registered an unexpected drop in early July as inflation worries heat up. Elsewhere, major European indexes were in the red, while Bitcoin managed to eke into the green.

Let’s check in on the market action today.

Markets update

Asia

• Asia was largely in the red, with the Hang Seng relatively flat, the Nikkei down roughly 1%, and the Shanghai Composite 0.7% lower.
• China sent officials to inspect ride-hailing giant DiDi‘s data security on-site. The move came after Chinese regulators shut down 25 of DiDi’s apps for violating data security laws. DiDi’s stock, which has taken a beating lately, closed about 3% lower on Friday.
• I mentioned this earlier in the week, but on Friday the Biden Administration officially issued a warning to U.S. companies operating in Hong Kong, highlighting concerns over China’s power to access things like company data.
• China launched the world’s biggest carbon emissions trading scheme on Friday. Fortune‘s Eamon Barrett writes that “the plan, which allocates industrial companies a quota for carbon emissions and allows greener firms to sell credits to more polluting ventures, is a step toward China’s goal of becoming carbon neutral by 2060. But the program is unlikely to produce any results this year.”

Europe

• The European bourses were off, with the Stoxx Europe 600 down roughly 0.3% and France’s CAC 40 off by 0.5%. London’s FTSE closed fairly flat, while the DAX in Germany was 0.6% lower.
• Over 120 people have died so far in widespread floods in Western Europe that hit Germany especially hard.

U.S.

• U.S. stocks all closed in the red, with the S&P 500 down nearly 0.8%, the tech-heavy Nasdaq 0.8% lower, and the Dow down almost 0.9%.
• U.S. consumer sentiment, measured in a preliminary estimate by the University of Michigan, unexpectedly dropped in early July to a five-month low at 80.8, down from 85.5 in the month prior, as higher prices and worries about inflation weigh on consumers. The reading sent stocks into the red.
• Fintech Square is building a new business for decentralized finance (or DeFi), primarily focused on Bitcoin. CEO Jack Dorsey announced the move on Twitter on Thursday afternoon. Square’s stock, meanwhile, rose about 1% on Friday.
• COVID-vaccine-maker Moderna is joining the S&P 500 ahead of the open on July 21. The stock popped 10.3% on the news on Friday.

Elsewhere

• Gold is down, trading around $1,810.
• The dollar is up.
• Crude is down, with Brent trading around $73/barrel.
• Crypto charts are a mix, with Bitcoin barely in the green, trading around $31,800 as of Friday afternoon, while Ethereum and Dogecoin are still trading in the red.

***

By the numbers

0.6%

Instead of the anticipated drop, retail sales in the U.S. rose unexpectedly by some 0.6% in June. That was an uptick from May’s levels, which were 1.7% lower than April. “Retail sales have basically hovered in place since March’s stellar, stimulus-fueled result. That’s not entirely a bad thing, because while they’ve plateaued, at least they’ve plateaued at a high level,” Ted Rossman, a senior industry analyst at CreditCards.com, wrote in a Friday note. Those sales were especially strong in areas like department stores (up 5.9%) and restaurants and bars (2.3% higher), as consumers are feeling better about spending out. But while that strong data initially juiced stocks early in the morning, the broad indexes closed the day down as the surprise decline in consumer sentiment and inflation fears appeared to overshadow the retail strength.

85%

Earnings season kicked off this week, facing the formidable task of living up to sky-high expectations. And so far, companies are off to a strong start. According to data from FactSet out Friday, 85% of S&P 500 companies that reported so far have beaten second quarter earnings estimates.

If that percentage holds throughout the reporting season, FactSet says “it will mark the second-highest percentage of S&P 500 companies reporting positive EPS surprises since FactSet began tracking this metric in 2008.” But that’s not necessarily great news for your portfolio. As we’ve seen in recent quarters, those beats don’t necessarily come with a stock boost: Bank of America cautioned in a report this week that “strong earnings don’t always translate to strong market returns. Historically, 60% of down quarters since 1996 (or 75% of down quarters ex-GFC) occurred in quarters with earnings beats.” In other words, don’t expect companies’ shares to get a post-report pop.

$575

Lumber has been tumbling (insert “Timber!” joke here) for weeks, and the lumber price per thousand feet just hit $575 on Friday—marking the first time it’s been below $600 since November, per data from Fastmarkets Random Lengths. The cash price is also down some 62% from its $1,515 all-time high on May 28 this year. The lumber crash is almost as astounding as its astronomical rise in 2020 and early 2021. But prices could soon be on the verge of a rebound.

That’s all for now. Thanks for having me this week! Read on for more news below.

***

Anne Sraders
@AnneSraders
Anne.Sraders@Fortune.com

As always, you can write to bullsheet@fortune.com or reply to this email with suggestions and feedback.

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