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U.S. stocks were in a downswing Tuesday to start a busy holiday-shortened week as investors weighed earnings letdowns from big-box retailers and considered the prospect of higher-for-longer interest rates.
The U.S. stock and bond markets were closed on Monday for Presidents Day.
The S&P 500 (^GSPC) plunged 1.5%, while the Dow Jones Industrial Average (^DJI) shed more than 500 points, or 1.6%. The technology-heavy Nasdaq Composite (^IXIC) tanked 1.9%.
Investors evaluated quarterly financials from Walmart (WMT) and the Home Depot (HD) for updates on the health of the U.S. consumer, which has so far remained resilient in the face of stubbornly high inflation — most recently evidenced by January’s stunning retail sales data out last week.
Walmart, however, warned Tuesday morning that it was cautious about the outlook for the economy and said consumers pressured by inflation shopping for lower-priced items may negatively impact margins. The retail giant also issued full-year earnings guidance below Wall Street estimates. Shares were little changed after paring an earlier loss.
“The consumer is still very pressured, and if you look at economic indicators, balance sheets are running thinner and savings rates are declining relative to previous periods,” Walmart chief financial officer John Rainey said during an earnings call. “And so that’s why we take a pretty cautious outlook on the rest of the year.”
he picture was similar for home improvement retailer The Home Depot, which also reported disappointing fourth quarter results and said it was in for a challenging 2023. Shares slid 5.4%.
On Friday, the Dow Jones Industrial Average logged its third-straight losing week for the first time since September, closing down 0.1% for the five-day trading period. The S&P 500 fell 0.3% for the week, its second consecutive week in the red, while the Nasdaq was an outlier, notching a weekly gain of 0.6%.
“There’s a quiet pulse of positivity on the markets with investors still cautious about the direction of interest rates in the United States, but hopeful that recovery elsewhere will lend a hand to trade,” Susannah Streeter, head of money and markets at Hargreaves Lansdown, said in a note. “Worries are still hanging around that US inflation will still take significant time to be whipped into a shape which will mean higher rates will have to linger for longer, sentiment which has been supporting the dollar.”
In other areas of the market, Treasury yields ascended, with the benchmark 10-year note rising 5 basis points to yield 3.88% early in the day. The U.S. dollar also climbed higher. On the commodities side, West Texas Intermediate (WTI) crude futures — the U.S. oil benchmark — gained 0.9% to trade around $77 per barrel.
Later in the week, Wall Street will get a readout of minutes from the Federal Open Market Committee’s last meeting earlier this month.
The release will offer clues about the next rate increase in March, which some investors are now expecting to be 50 basis points after strong economic data and hotter-than-projected inflation readings.
Last week, Fed President Loretta Mester said she would have favored raising interest rates by 50 basis points Feb. 1 rather than the smaller quarter-point rate increase her colleagues opted for.
Traders fretting over inflation and the path forward for interest rates also await the Personal Consumption Expenditures (PCE) price index — the Fed’s most closely watched assessment of how quickly prices are rising across the economy — which is set for release Friday morning.
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