Nasdaq, S&P, Dow mixed as January retail sales jump by the most in almost two years

U.S. stocks on Wednesday had climbed off their session lows but struggled to gather momentum, after data showed a surge in retail sales in January which pointed towards strong consumer spending despite soaring prices.

By afternoon, the tech-heavy Nasdaq Composite (COMP.IND) had climbed 0.20% to 11,983.81 points. The benchmark S&P 500 (SP500) was lower by 0.22% to 4,127.20 points, while the blue-chip Dow (DJI) slipped 0.36% to 33,966.50 points.

Of the 11 S&P sectors, six were trading in the red, led by Energy. Communication Services topped the gainers.

All three indices had ended mixed in a choppy session on Tuesday which was triggered by a hotter-than-expected inflation report for January.

Today's data showed that retail sales rose 3.0% M/M in January, significantly higher than the estimated 1.7% increase and following a 1.1% dip in December 2022. The jump in retail sales suggest that consumer spending has remained strong and could keep prices elevated, which in turn could increase pressure on the Federal Reserve to stick with its rate hikes.

"A good chunk of the January strength in retail sales likely is due to unseasonably warm weather, which will reverse in the months ahead. That won’t stop markets fretting that the economy is impervious to the Fed, but we think that view is just wrong," Pantheon Macro's Kieran Clancy said.

"Once core sales correct, auto sales will be left to do the heavy lifting if consumption is to avoid outright declines over the coming quarters. We think that’s a decent bet, at least in the near term, but eventually the pent-up demand for autos will weaken in the face of significantly higher financing costs," Clancy added.

Turning to the fixed income markets, yields were mixed. The 10-year Treasury yield (US10Y) rose 4 basis points to 3.80%, while the 2-year yield (US2Y) was flat at 4.62%.

Yesterday, "10Y Treasuries decisively crossed the 3.75% threshold, and the 2Y is quickly converging to 5%," ING said. "Today’s stronger industrial production and retail sales should reinforce this trend, although the 2Y reaching 5% would either presuppose a much higher terminal rate than currently priced (5.25%) or hardly any rate cut within that horizon. It’s a tall order, but momentum is on the side of bears."

Apart from retail sales figures, Wednesday's economic calendar also saw U.S. industrial production coming in unchanged for January.

Additionally, the Empire State manufacturing survey for February came in at -5.8 versus a consensus of -18.

Among active stocks, Devon Energy (DVN) slumped after its quarterly results missed estimates. Akamai Technologies (AKAM) retreated on worries over a change in its strategy announced on the earnings call. Both companies were the top two percentage losers on the S&P 500 (SP500).

Conversely, Martin Marietta Materials (MLM) and Generac (GNRC) were the top two S&P percentage gainers, after their results were cheered.