4:22pm: Benchmarks spiked shortly after release of Fed minutes
The Dow closed Wednesday down 172 points, 0.5%, at 33,980, the Nasdaq Composite slid 164 points, 1.3%, to 12,938 and the S&P 500 dropped 31 points, 0.7%, to 4,274. For the Dow, the losing session snapped a five-day winning streak.
Investors reacted to the minutes from the latest Federal Reserve meeting, as the benchmarks spiked briefly after they were released at 2 pm. The Fed stated that it would likely continue to raise interest rates in order to combat inflationary pressures.
“No surprise to see the market take a breather from the summer rally it’s been riding,” said Chris Larkin, managing director of trading at E-Trade Financial, according to CNBC. ” ...The market is looking for any sign that a slowdown in rate hikes, which has seemingly fueled the recent rise, is coming. Investors should remain nimble and continue to expect volatility as we may not be out of the woods just yet.”
Meanwhile, Target Corporation (NYSE:TGT) stock slipped 2.7% after the retailer's earnings per share ($0.39) came in dramatically lower than Street expectations ($0.72). The company also said its second-quarter profit fell about 90% year-over-year.
2:15pm: More rate hikes coming
According to the latest minutes from its monthly meeting, the US Federal Reserve saw little evidence late last month that inflation pressures were easing.
The group is committed to raising rates as high as necessary to bring inflation under control, which would mean less spending and lower overall growth for that to happen.
12:05pm: US markets remain lower at midday
The major US indices were all in the red, as traders worried about flat US retail sales numbers in July, and brace for the minutes from the Federal Reserve’s July meeting, due to be published at 1 pm ET.
At midday, the Dow Jones Industrial Average was down 0.8% to 343,871, the S&P 500 was down by 1.1% at 4,258, and the Nasdaq Composite was down by 1.68% at 12,882.
Michael Hewson, chief market analyst at CMC Markets UK, said US markets opened lower after US retail sales for July came in unchanged, while the June numbers were revised down to 0.8% from 1%, indicating that consumers are feeling the squeeze from inflation.
He noted that America’s eighth largest retailer, Target, posted earnings today that missed expectations.
“Having seen Walmart beat expectations yesterday after issuing a profit warning a few weeks ago, there was some expectation that Target would follow suit. This expectation proved to be misplaced as Target missed the mark on revenues and profits, sending the shares lower in early trade,” Hewson said.
Hewson noted that Target’s 2Q revenues came in at US$25.65 billion, below expectations of $25.85 billion, while profits came in at $0.39 a share, against a forecast of $0.77. Operating margins fell sharply to 1.2% from 2.1% as the retailer cut prices to clear excess inventory.
“For the rest of the year Target says it still sees full year revenue growth in the low to mid-single digits,” Hewson said.
On the other hand, Hewson noted the meme stock craze is back with Bed Bath and Beyond shares up again today.
“Over the past few weeks, they’ve risen over 300% in the face of more downgrades. Only last year the company was branded un-investable by several banks which dropped coverage of it, due to the immense volatility which made assigning a fair valuation of the business almost impossible,” he said.
At midday, the major movers included Aligent Technology up by 7%, and on the downside, Boeing dropped 3.3%.
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9:40am: Retail sales flat
US stocks opened lower after new retail sales data indicated flat sales figures from June to July rather than the expected increase.
At the open, the S&P 500 was down 0.8% at 4,269 points, while the Dow Jones lost 0.6% at 33,937. The Nasdaq declined by 1.2% at 12,947.
Auto sales weighed on overall US retail figures, according to the new data released by the US Census Bureau. Excluding autos and gas, sales rose 0.7% in July. At gasoline stations, sales fell 1.8% in July, which was not a surprise, given the higher gas prices across the country in recent weeks.
On the earnings front, retail giant Target Corporation (NYSE:TGT) missed expectations for its second quarter, with same-store sales rising 2.6% versus the expected 2.8%. Shares of Target were down 2.8% in early trading.
Competitor TJX, the parent company of TJ Maxx, also missed estimates and lowered its current quarter profit outlook, but its shares were trading around 1.4% higher at the open.
6:30am: Cautious start predicted
US stocks were expected to open lower on Wednesday with the focus on more earnings from the retail sector and on minutes of the US Federal Reserve's last rate-setting meeting.
Strong quarterly earnings from Walmart and Home Depot helped stocks higher on Tuesday and it will take similarly good results from the likes of Target to lift prices on Wednesday.
Futures for the Dow Jones Industrial Average were trading 0.4% lower pre-market, while those for the broader S&P 500 index were down 0.6%, and contracts for the tech-laden Nasdaq-100 lost 0.7%.
Earnings and the minutes will be decisive for the short-term direction, said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
“Equities in the US escaped negative pressure thanks to better-than-expected earnings report from Walmart yesterday. The US retail giant revealed that its profit came under pressure as customers moved to groceries and essentials, with lower profit margin, but that was already priced in because they had already given that warnings earlier this summer,” she noted.
Against that backdrop, earnings from key retailer Target will be closely watched for signs of waning consumer spending.
Minutes from the Fed's last rate-setting meeting are due out around 2.15pm ET, and these will be scrutinized for direction on future monetary policy.
“The minutes will likely sound more hawkish than expected, as the Federal Reserve rate expectations softened probably too much after last week’s CPI report in the US surprised with a softer-than-expected 8.5% print. But, 8.5% is still very high; it’s more than four times the Fed’s 2% policy target,” said Ozkardeskaya.
In the wake of the softer-than-predicted headline inflation number, investors scaled back their expectations for future rate hikes. The minutes may force investors to rethink those expectations. Conversely, any sign that rate-setters were already thinking of slowing down the pace of interest rate hikes will likely provide a boost for stock prices.
Contact the author at jon.hopkins@proactiveinvestors.com