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Dow Spikes on Trade War Hype, But Vital Consumer Data Save the Day

Last Updated September 23, 2020 1:16 PM
Josiah Wilmoth
Last Updated September 23, 2020 1:16 PM
  • The Dow, S&P 500, and Nasdaq rose in unison on Friday.
  • A vital consumer data metric rebounded from the previous month’s unexpected contraction.
  • Trump administration officials expressed confidence that the US and China will sign a trade deal soon.

The Dow forged ahead on Friday, setting the 28,000 mark firmly in its sights as strong consumer data and upbeat trade war forecasts satiated bullish investor appetites.

Dow Blasts Toward 28,000 Level

Wall Street’s three major indices rose in unison during the week’s final trading session. The Dow Jones Industrial Average bounced 90.3 points or 0.33%. The index now stands at 27,871.26, a new all-time high.

dow jones industrial average chart
The Dow rose nearly 100 points on Friday to record yet another all-time high. | Source: Yahoo Finance 

The S&P 500 rallied 9.5 points or 0.31% to cross the 3,100 threshold. The large-cap index last traded at 3,106.38.

The Nasdaq outperformed, blasting 36.66 points or 0.44% higher to 8,516.22.

The CBOE VIX, a measure of implied stock market volatility, dropped 2.3%, placing pressure on safe-haven assets. Gold snapped its daily winning streak to trade 0.5% lower, and silver slid nearly 1% after falling below $17.

Vital Consumer Data Rebound from Unexpected Contraction

The stock market benefited from a new batch of consumer data that demonstrates the US economy is continuing to defy recession portents.

US retail sales rose 0.3% in October , narrowly beating economist estimates and suggesting that consumer spending – the backbone of the economy – continues to weather the trade war without much difficulty.

us retail sales october 2019
This vital consumer metric rebounded in October. | Source: Trading Economics 

Core retail sales rose 0.2%. That was slightly below the consensus forecast. However, it demonstrates that consumer spending is still moving in the right direction, even without the help of automobile sales, which can vary significantly from month to month.

Both retail sales metrics had unexpectedly contracted in September , setting off recession alarms. Some analysts had predicted that consumer spending had been artificially inflated in recent months, with Americans accelerating big-ticket purchases to avoid tariff-related price increases. According to that theory, September’s retail sales print was proof that the weakening economy had begun to hit consumer wallets.

However, subsequent data painted a less dire picture of the economy. Consumer spending rose 0.2% in September, despite the contraction in retail sales. Business investment has been slowing, but that does not appear to have reverberated down to wages and, ultimately, household spending habits.

At least not yet.

Trump Officials Whip up Trade Deal Optimism

Robust economic data may have fortified the Dow on Friday, but the real trigger for today’s stock market rally came Thursday night when White House economic adviser Larry Kudlow said that “phase one” trade deal negotiations are nearing the finish line .

“We are coming down to the short strokes,” Kudlow said. “We are in communication with them every single day right now.”

On the other hand, that’s a refrain that investors have heard before. “The devil,” to borrow an idiom from Commerce Secretary Wilbur Ross , “is in the details,” and those details have led to sharp disagreements between Washington and Beijing.

Most recently, the two countries have come to loggerheads over tariff reductions. China wants the phase one deal to include tariff rollbacks, while the Trump administration has said that those rollbacks shouldn’t even be considered until a trade deal is already in place.

Moreover, some Asian trade experts have warned that Trump may be pursuing unrealistic demands on agricultural purchases. According to the South China Morning Post, it’s “not really possible” for China to fulfill Trump’s request  that they purchase $50 billion worth of soybeans and other US farm goods.

African swine fever has decimated China’s pig population, causing demand for staple crops like corn and soybeans to plunge. Compounding the problem, prices have fallen along with demand.

“With the African swine fever, there’s just not much demand for the stuff that the US has to offer in terms of corn or soybeans to feed pigs – because we just do not have any pigs. We’ve lost half of them!” said Darin Friedrichs, senior Asia commodity analyst at trading house INTL FCStone in Shanghai.

That may explain why Beijing has been reluctant to make a firm commitment on agricultural purchases, despite the fact that Trump has been saying for more than a month that China had already agreed  to buy $50 billion worth of US farm goods.

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