Stocks fall on economic warnings from Walmart, Home Depot

US stocks tumbled on Tuesday as the prospect of longer interest rates and major retailer disappointment dampened sentiment on Wall Street to kick off a busy holiday week.

Those were the US stock and bond markets closed on Mondays for presidents day.

The S&P 500 (^GSPC) fell 2% to fall below the key 4,000 level, while the Dow Jones Industrial Average (^DJI) lost nearly 700 points, or 2.1%. The tech-heavy Nasdaq Composite (^IXIC) tanked 2.5%.

Investors reviewed Walmart’s quarterly financials (WMT) and the Home Depot (HD) for updates on the health of the US consumer, which has so far remained resilient in the face of stubbornly high inflation, as evidenced recently by The stunning retail sales data from January last week.

However, Walmart warned Tuesday morning that it is cautious about the outlook for the economy and said customers pressured by inflation shopping for cheaper items could negatively impact margins. The retail giant also issued full-year earnings estimates that fell short of Wall Street estimates. Shares closed slightly higher after losses from the start of the session.

“Consumers are still under a lot of pressure, and if you look at economic indicators, balance sheets are getting thinner and savings rates are down from previous periods,” said John David Rainey, Walmart’s chief financial officer. said during an earnings call. “And that’s why we’re looking pretty cautiously at the rest of the year.”

The picture was similar for home improvement retailer The Home Depot, which also reported disappointing fourth-quarter results and said it was facing a challenging 2023. Shares fell 7.1%.

Speculative tech stocks, which led the rally higher to start the year, took a beating on Tuesday. Cathie Woods Ark Innovation ETF (ARKK) fell 6.1%. Tesla (TSLA) fell 5.3% after rising for six straight weeks.

Morgan Stanley’s Mike Wilson wrote Tuesday morning that “the bear market rally that began in October with reasonable prices and low expectations has turned into a speculative frenzy based on a Fed break/pivot not coming.”

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On Friday, the Dow Jones Industrial Average recorded his third consecutive losing week for the first time since September, dropping 0.1% for the five-day trading period. The S&P 500 fell 0.3% this week, its second straight week in the red, while the Nasdaq was an outlier, gaining 0.6% weekly.

“Investors are waking up to the realization that new rate hikes will be needed in the US, perhaps three in quick succession, to tame the price spiral and that will make consumers more cautious,” said Susannah Streeter, head of money and markets. at Hargreaves Lansdown, said in emailed comments.

In other parts of the market, government bond yields rose, with the 10-year benchmark rising 12 basis points to above 3.9%, the highest level since November. The US dollar also appreciated.

“Rising rates due to the market revision of potentially higher monetary policy for an extended period of time have weighed on risk appetite,” LPL Financial chief technical strategist Adam Turnquist said in a note. “Benchmark 10-year Treasury yields have now cleared key resistance at 3.90%, increasing upside risk in returns, which is likely to continue to weigh on equities.”

Later in the week, Wall Street will receive a reading of the minutes of the last meeting of the Federal Open Market Committee earlier this month.

The release will provide clues about the next rate hike in March, which some investors now expect will be 50 basis points following strong economic data and higher-than-expected inflation numbers.

Last week, Cleveland Fed President Loretta Mester said she would have preferred a 50 basis point interest rate hike on Feb. 1 rather than the smaller quarter-point rate hike her peers opted for.

Traders concerned about inflation and the path forward for interest rates are also awaiting the Personal Consumption Expenditures (PCE) Price Index, the Fed’s best-tracked assessment of how fast prices are rising in the economy, due Friday morning. released.

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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