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Stocks Challenged as Fiscal Stimulus Must Wait

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Stocks were challenged Friday, with tech stocks keeping the S&P 500 afloat. Congress is breaking for the summer and the much-needed new round of fiscal stimulus will wait until at least September. 

The S&P 500 fell 0.1%, with the tech-heavy Nasdaq up 0.1%. 

The 10-Year Treasury yield fell to 0.7% from 0.72%. yields fall when prices rise. The yield had risen sharply this week, as the Treasury Department issued tens of billions of dollars of new long-term bonds, putting supply pressure on the price of treasuries. About $1.8 billion flowed out of government bonds this week, according to data from Bank of America Global Research. 

But poor trading action in the yield-curve sensitive banking sector showed the reality, which most bond managers admit to, that interest rates are bound to remain depressed for some time, as uncertainty over the economic recovery remains a theme. Low rates are supportive of stocks, but reflective of the shaky environment. 

Senate lawmakers followed House Democrats in adjourning for the summer break, which means there will e no fiscal stimulus until at least September. Meanwhile, states have paused reopenings and small businesses need cash in order to keep employees. This is a threat to the currently speedy economic recovery. 

The “standstill fiscal talks in the US limited the appetite for more equity purchases” wrote Ipek Ozkardeskaya, senior analyst at Swissquote Bank in emailed remarks to reporters. 

Cyclical sectors like consumer discretionary and banking fell roughly 1%, with the Invesco KBW Bank ETF  (KBWB)  down almost 1%. 

Retail sales for July came in at a 1.2% increase, against estimates of 2% and a sharp drop-off from June’s reading of up 8.4%. Job data has trended with sharp improvements, contrary to the retail reading, providing confusion for some investors on the speed of the recovery. 

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