US top stocks declined on Wednesday, with the Dow ending an eight-day winning streak, while smaller-caps made at best firm closes as bond yields fell back from days of sell-off, signalling that risk appetite is waning since Donald Trump’s US election victory surprise a week ago.
The market bellwether S&P 500 ended down 0.2% at 2176 – having only gained on Tuesday following a week of sell-off or flat daily returns. Meanwhile, feeling the pain more was the rising star of the DJIA, which closed down 0.3% at 18,868 after eight sessions of gains, four of them record high closes.
The S&P Midcap 400 ended flat at 1595. It’s top gainer had been Fossil Group (NASDAQ:FOSL), which closed up 8.4% at $35.70. But nearing the end of session this was overtaken by Advanced Micro Devices (NASDAQ:AMD) up 10% to $7.67 with a huge 34.33mln shares traded. The move came after 7 months positive chart setup for the $7.15bn company Barchart.com reported.
The S&P Smallcap 600 closed up 0.06% at 795 and led by Tidewater Inc (NYSE:TDW) up 11% at $2.32.
After a week of stock rotation and guesswork which sectors of Wall Street will be winners and which losers of a Trump Administration, focus may start turning to those that work with the defence market, according to a major ratings agency.
Despite threats to pull back from some key US military commitments, US President-elect Trump may bring a windfall for the defence sector, according to Fitch Ratings analysts.
The results of last week’s election – which handed control of the White House and both chambers of Congress to the Republican party – is a credit positive for the defence industry, positioning government spending for a big boost over the next five years, said Fitch.
The US Department of Defense will likely see its budget and spending increase over the next five years, with the Navy and cyber security particularly well positioned to benefit from targeted responses to perceived global threats, the note said. Another winner could be the Department of Homeland Security, given Mr Trump’s campaign promises to build a wall on the US-Mexico border.
Defence exports, however, may find themselves in a more precarious position under Mr Trump, the note said. The US defence sector has benefitted from rising exports, and Mr Trump’s protectionist stance on trade could put that in peril. Unless the Republicans do away with red tape regulation, which they might.
Early trading
US stocks were lower in early trading on Wednesday as markets paused for breath after a week of risk-on strategies for what appear to be pro-business plans from US President-elect Donald Trump.
But by Wednesday, even the S&P 500 which caught up the previous session with record gains elsewhere, was lower by 0.2% to 2176.
But the top gainer was Target Corp (NYSE:TGT) up 7.9% to $77.08 after reporting forecast-berating results.
But the S&P Midcap 400 index was slightly higher, up 0.06% to 1596 and led by Fossil Group (NASDAQ:FOSL) up 7.8% to $35.49 after it was upgraded by equities research analysts at KeyCorp to an “overweight” rating.
The S&P Smallcap 600 was up 0.1% to 796 and led by Medicines Co (NASDAQ:MDCO) up 7% to $39.37.
Elsewhere, Lowe’s (NYSE:LOW), the home improvement retailer, was down 2.7% at $67.20 after it reported sharply weaker third quarter sales growth and lowered its full-year sales and earnings guidance amid signs that Americans are cutting back on spending on their homes.
For the three months to October 28, same-store sales, a key industry metric, rose 2.7$, a step down from the 5.3% pace logged during the second quarter and below the 3.2% increase analysts were expecting.
Its results come a day after rival Home Depot (NYSE:HD) reported robust results – but investors still pulled away even as the housing sector continued to show signs of strength. In fact, if interest rates rise next month one of the side-effects is likely to be that homeowners gentrify their current properties. Home Depot shares recovered on Wednesday, up 0.4% to $124.84.
Pre-Open
US stocks are likely to open lower on Wednesday even with bonds resuming their global sell-off, in a sign that risk appetite is cooling after Donald Trump’s presidential election victory last week.
The S&P 500 is indicated down 0.3%. That makes the Dow Jones Industrial Average, which scored a fourth successive daily record high on Thursday, less likely to hit the 19,000 level. It was just 77 points off on Thursday.
But weighing on markets is the near-full expectation that the Federal Reserve will hike rates on December 14 – and that if Trump’s reflationary policies are put into effect will mean more rates and inflation to come.
In another thread of evidence that ivnestors are pricing in a US interest rate for next month, the trade-weighted dollar has hit its highest level in 13 years.
The index that measures the greenback against a basket of its peers gathered pace on Wednesday, rising to 100.530.
One piece of data that is neither here nor there for rate policy was US producer prices released on Wednesday.
Rather historical in meaning, PPI was unchanged in October from September of 2016, following a 0.3% rise in the previous period and below market expectations of a 0.3% gain. Services cost fell 0.3%, following a 0.1% rise in both August and September, - interestingly due to a 5.7% drop in prices for securities brokerage, dealing, investment advice, and related services.
The Department of Energy will release its latest crude oil inventories data at 1230 ET (1730 GMT).
In company news, Target (NYSE:TGT) delivered strong third quarter sales numbers for the third quarter, boosted by unexpectedly robust demand for new clothes and school supplies during the back-to-school shopping season in September and growth in online sales.
The better-than-expected performance prompted Target to raise its full year earnings guidance and sent shares in the Minneapolis-based company up nearly 8 per cent in pre-market trading.
For the three months to the end of October, sales fell 6.7 per cent to $16.7bn. Much of the decline is the result of lost revenue following the sale of its pharmacy and clinic business to CVS Health (NYSE:CVH).
Target shares were up 8.2% at $77.28 pre-market.
But Lowe's (NYSE:LOW), the home improvement retailer, earned an adjusted 88 cents per share for the third quarter, missing estimates by eight cents a share. Revenue was also below forecasts. Same-store sales rose 2.7%, falling short of the Thomson Reuters consensus estimate of a 2.9% increase. Lowe's also warned it may not meet prior sales guidance.
Lowe’s share ticker seemed to sum up where the stock was heading. The shares were down 4.1% at $66.20 pre-market.