U.S. stocks turned lower in choppy trading Tuesday, as investors weighed a raft of earnings from retailers, kept an eye on Treasury yields, and awaited a speech at the end of the week by Federal Reserve Chair Jerome Powell.
Bank shares were broadly lower after S&P Global Ratings downgraded five smaller players.
What’s happening
-
The Dow Jones Industrial Average
DJIA
fell 113 points, or 0.3%, to 34,350. -
The S&P 500
SPX
was off 2 points, or less than 0.1%, at 4,398. -
The Nasdaq Composite
COMP
was up 38 points, or 0.3%, at 13,536.
On Monday, the S&P 500 and Nasdaq Composite ended higher, snapping four-day losing streaks, while the Dow booked a modest loss of 36.97 points, or 0.1%, after falling 252 points at its session low.
What’s driving markets
S&P’s rating downgrades came days after a Fitch Ratings analyst reduced his operating environment score for U.S. banks to aa- from aa due to the unknown path of interest rate hikes and regulatory changes facing the sector. Moody’s Investors Service just two weeks ago upset investors when it downgraded some lenders and said it was reviewing ratings on bigger banks.
The SPDR S&P Bank ETF
KBE
fell 2%, while financials fell 5% to lead S&P 500 sectors to the downside.
See: U.S. banks and regional lenders slide across the board as S&P is latest to downgrade ratings
Meanwhile a slew of disappointing earnings results from retailers, including Dick’s Sporting Goods Inc.
DKS,
and Macy’s Inc.
M,
set a downbeat tone for the industry, with the SPDR S&P Retail ETF
XRT
down 2.8%.
The S&P 500 is down more than 4% so far in August, as the benchmark 10-year Treasury yields have risen to a 16-year high, in a move sparked in part by concerns about booming supply of debt and on stronger-than-expected economic data of late.
The yield on the 10-year Treasury note
BX:TMUBMUSD10Y
was down around 1.8 basis points at 4.318%, after ending New York trading on Monday at its highest since November 2007.
Stocks on Monday, however, managed to gain ground despite a further rise in yields, a move attributed to optimism ahead of Nvidia’s results.
“[T]he market mood got significantly better yesterday,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank. “Tech stocks fueled the rally in the U.S., as Nvidia jumped 8.5% … before the release of its [second quarter results on Wednesday].”
But Ozkardeskaya warned: “Nvidia had better meet its $11 [billion] sales forecast for last quarter, otherwise, there is a chance that we will see a sizable downside correction.” Nvidia shares were off 2.5% Tuesday afternoon.
Need to Know: Nvidia may be the AI stock for now, but here are the picks for later, says Goldman Sachs
Traders also have one eye on a likely catalyst later in the week. Federal Reserve Chair Jerome Powell is scheduled to deliver a speech at the Kansas City Fed’s annual monetary policy symposium in Jackson Hole, Wyo.
Powell’s words are “likely to be the next acid test for markets, with particular scrutiny likely to land on any outlook comments. The battle against inflation, as evidenced by the recent consumer-price index, is not yet over, with the level still above the Fed’s 2% target,” said Richard Hunter, head of markets at Interactive investor.
The U.S economic calendar featured existing-home sales. The National Association of Realtors said sales of previously owned homes fell by 2.2% to an annual rate of 4.07 million in July, a six-month low, amid higher mortgage rates and a continued shortage of homes for sale.
Companies in focus
- Dick’s Sporting Goods Inc.’s stock tumbled 24% after the retailer’s second-quarter profit missed consensus by a wide margin, while sales also fell short.
- Macy’s Inc. shares fell 13% after the department-store retailer reported a loss in the latest quarter while posting a decline in sales. The company logged a fiscal second-quarter net loss of $22 million, or 8 cents a share, whereas it posted net income of $275 million, or 99 cents a share, in the year-prior period.
-
Lowe’s Cos. shares
LOW,
+3.70%
rose 3.8% after the home-improvement-supplies company posted a 1.6% decline in comparable sales for the fiscal second quarter, compared with the 2.6% drop that analysts were expecting. Net earnings at Lowe’s were $2.7 billion, or $4.56 a share, compared with $3 billion, or $4.67 a share, in the year-prior quarter. -
Activision Blizzard shares
ATVI,
+0.95%
rose 1% after Microsoft reached a deal with Ubisoft Entertainment to license the cloud streaming rights to Activision games, in an attempt to secure approval from the U.K. competition regulator. Microsoft’s stock
MSFT,
+0.32%
rose 0.5%. -
Zoom Video shares
ZM,
-1.51%
fell 0.9% after the videoconferencing giant on Monday reported a big jump in earnings and strong full-year guidance.
