4.15pm: Nasdaq, S&P and Dow head south
US markets ended a subdued day the wrong side of the line with all three major indices ending in negative territory.
At the close the Dow Jones Industrial Average was down 39 points, or 0.12%, to 33,554, the S&P 500 fell 33 points, or 0.83%, to 3,959, and the Nasdaq Composite dipped 174 points, or 1.54%, to 11,184.
Gloomy earnings from Target Corp. saw shares in the big box retailer fall 13% as the company said its profit fell by around 50% in its fiscal third quarter and it cut its fourth-quarter outlook. Other retailers fell on the back of the numbers.
The disappointing update seemed to contradict the picture painted by resilient retail sales figures.
Brian Levitt, Global Market Strategist at Invesco, called it a mixed picture, noting that retail data released earlier in the day was at odds with the Target warning.
“Retail sales data suggested consumers are willing to spend, particularly on big topic items while the retail bellwether Target warned of a weaker holiday season,” he told CNBC.
“The latter is more in line with our expectations. Tighter monetary policy is designed to make people feel less wealthy. The idea is to slow consumption, allowing inflation to moderate. Ironically that will also set the stage for a recovery. ”
Other stocks on the move included Advance Auto Parts Inc. which slumped 15.8% after reporting lower-than-expected quarterly earnings after the bell Tuesday.
The automotive parts seller was subsequently downgraded by UBS, which said the company’s steep unit losses suggest “it is losing customers at a rapid pace.”
But on the upside TJX Companies Inc (NYSE:TJX). rose 3.5% after the company topped earnings estimates for the previous quarter and named a new chief financial officer.
12:05pm: WTI drops to US$84.53 a barrel
The major US indices continued to drift lower midday, as traders struggled to find a reason to extend the risk rally.
At midday, the S&P 500 was down by 0.6% at 3,968, the Nasdaq Composite was down by 1.3% at 11,208, while the Dow Jones was up by 0.6% to 33,611 points.
Chris Beauchamp, chief market analyst at online trading platform IG, said the risk rally momentum has ebbed as the positive momentum established by last week’s CPI figure disappeared.
“This may well only be a temporary development, and the gains of the past week or so certainly suggest that the market is in a mood to push higher into the end of the year. While not exactly beating the drum on a pivot, Fed speakers have not been too zealous in talking about the need for higher rates, thus helping to avoid a resumption of the downtrend in equities for now,” Beauchamp wrote in a report.
He also noted that oil prices were down again.
“Worries about Chinese growth have been a driver of weakness in oil, and even a sharp drop in inventories has done little to prop up WTI and Brent. Weakening oil helps the argument that US inflation has peaked, providing a support for equities, though bulls would doubtless love to see further declines to really accelerate the fall in inflation,” Beauchamp said.
At midday, West Texas Intermediate was down by 2.8%, trading at US$84.53 a barrel.
The major movers at midday included SVB Financial, up by 8.9% after finishing up by 9.2% on Tuesday, after JP Morgan maintained an overweight rating and the US$375 price target, a 55% increase over the current price. Signature Bank rose by 8% and Paramount Global was up by 7.7%.
On the downside, Abermarle was down by 6.7%, Capital One Financial (NYSE:COF) slid by 6.2% and Synchrony Financial fell by 4.4%.
9.43am: Target shares sink after profit disappoints
Shortly after the opening bell Wednesday, the Dow was up 20 points, less than 0.1%, while the Nasdaq Composite slid 77 points, 0.7%, to 11,281 and the S&P 500 declined 10 points, 0.3%, to 3,982.
Shares of Target Corporation (NYSE:TGT) are dragging on S&P 500 early. The retailer's stock is down about 15% after the company reported a third-quarter profit decline of roughly 50% and warned of a slower holiday season.
Investors also reacted to retail sales data. Advanced sales for the month of October increased 1.3%, topping Street expectations of 1.2%, according to data from the Commerce Department. Excluding autos, the figure was also 1.3%, ahead of expectations of 0.6%.
That builds on better-than-expected producer price index data for October, which sparked a market rally on Tuesday, but those gains may be short-lived, said Adam Sarhan, CEO of 50 Park Investments.
“In the short term, the market is very extended and overdue to pull back and digest the recent rally,” Sarhan said, as reported by CNBC.
6.30am: Caution
US stocks are expected to open flat on Wednesday as the cheer over easing inflationary pressures is seen as likely to be offset by rising geopolitical worries arising from Russian missiles landing within the borders of NATO-member Poland.
Futures for the Dow Jones Industrial Average were flat in pre-market trading, while those for the S&P 500 were little changed, and contracts for the Nasdaq-100 rose 0.1%.
“US stocks extended rally yesterday, as the unexpected easing in producer prices beefed up the optimism that the Federal Reserve would soften the monetary tightening and the better-than-expected New York Empire State Manufacturing index hinted that the US economy is holding up well,” noted Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
Investors reacted positively to the latest producer price index report, a measure of wholesale inflation, which rose 0.2% in October, lower than the 0.4% rise expected. The softer data came on the heels of last week’s easing in the consumer price index for October.
Some of the cheer from the economic data is expected to continue into trading on Wednesday.
“News that Russian missiles fell to Poland somehow killed a part of that falling-inflation, resilient growth optimism. But escalation of tensions have been avoided so far,” said Ozkardeskaya.
Notably, however, the escalation in hostilities led energy prices higher. “US crude gained on the geopolitical concerns after the Poland attack, and on a more-than-5-million-barrel decline in US oil inventories last week,” said Ozkardeskaya.
Taiwan Semiconductor Manufacturing is expected to stay in focus after the stock shares jumped over 10% on news that Warren Buffet’s Berkshire Hathaway took an around $5 billion stake in the company.
“Investors concluded that Buffet thinks that the selloff may have hit a bottom after a nearly 60% dive since the beginning of the year, which wiped out $250 billion in value, said Ozkardeskaya.
On the economic data front, focus will be on US retail sales figures for October due at 8.30am ET.
Contact the author at jon.hopkins@proactiveinvestors.com