Stocks dipped on Tuesday, with the Nasdaq erasing earlier gains to join the S&P 500 and Dow in the red.
The S&P 500 drifted lower and headed for a second straight day of declines. The Nasdaq also sank, and the Dow shed more than 100 points, or 0.3%. Walmart (WMT) shares gained more than 2.5% after the company posted first-quarter earnings that handily exceeded estimates and raising full-year guidance. However, Home Depot (HD) and Macy's (M) shares declined even after both companies topped Wall Street's first-quarter earnings estimates.
Technology stocks have fluctuated between steep gains and losses over the past several weeks, with concerns over inflation and higher rates threatening to weigh on valuations of high-growth stocks. The information technology sector has increased by just 3.4% for the year-to-date through Monday's close, far underperforming the broader index's 10.8% gain over that time period and coming in as the worst performer of the index's 11 sectors. Last year, the information technology sector was the biggest outperformer.
"Markets have basically made inflation the battleground issue for determining whether or not it's really this rotation trade that'll win out the rest of this year, or whether it's the tech and growth stocks that won out last year," James Liu, Clearnomics founder and CEO, told Yahoo Finance. "You've seen this bounce back and forth throughout the course of this year."
"Right now what you're seeing with inflation are those base effects. Everyone is calling those transitory. You're seeing supply and demand issues in certain sectors," he added. "But what we're really not seeing is what we would usually call monetary inflation, which is what you saw in the 1970s and 1980s, and that's really where big inflation protection in your portfolio really comes into play. So for us, right now we think it pays for investors to stay invested and to basically look out for the second half of this rotation trade for this rest of this year."
Other strategists said technology shares may get some respite in the near-term after a difficult start to 2021.
"We actually think tech is going to recover a little bit now that we're past that strong inflation data and past the early part of the month where you've got a lot of economic data in the U.S.," Stuart Kaiser, UBS head of equity derivatives research, told Yahoo Finance. Last week, the government reported that headline consumer prices surged by a faster than expected 4.2% last month. A separate print on producer prices also came in higher than expected, with core producer prices rising 4.1% last month versus the 3.8% increase expected.
"Sequencing-wise, tech was under pressure, it stabilized a bit during earnings and then it came under renewed pressure once that inflation data came out," he added. "What we're thinking [and] hoping is that now that that inflation data's been digested a bit last week, that will give tech a little bit of room to recover over the next four to six weeks."
4:03 p.m. ET: Stocks end lower despite blowout retail earnings; S&P 500 posts back-to-back sessions of losses
Here were the main moves in markets as of 4:03 p.m. ET:
S&P 500 (^GSPC): -35.48 (-0.85%) to 4,127.81
Dow (^DJI): -267.66 (-0.78%) to 34,060.13
Nasdaq (^IXIC): -75.41 (-0.56%) to 13,303.64
Crude (CL=F): -$0.70 (-1.06%) to $65.57 a barrel
Gold (GC=F): +$2.20 (+0.12%) to $1,869.80 per ounce
10-year Treasury (^TNX): +0.2 bps to yield 1.6420%
12:42 p.m. ET: Growth stocks more at risk in the event of a Fed shift on policy: Strategist
A lasting jump in inflation could prompt a shift in Federal Reserve monetary policy, which is poised to more deeply impact growth and "longer-duration" equities that would be more sensitive to changes in interest rate, many strategists have noted.
"What we ultimately care about is, what is the ultimate impact to equity markets. We see two main risks," BNP Paribas Vice President Maxwell Grinacoff told Yahoo Finance. "The first is whether higher inflation will ultimately die at the Fed's hand in terms of pushing up the timeline for tapering asset purchases or hiking rates. And there's risk of a quote unquote taper tantrum 2.0 scenario as we've been calling it."
"There is a risk for a broader correction in this scenario. We do think it will be ultimately more shallow and short-lived in nature," he added. "We also see growth-oriented equities more at risk in this scenario."
11:40 a.m. ET: Walmart's blowout Q1 earnings helped by shift to purchases of more profitable goods, cost-cutting strategies: Strategist
Walmart's stronger than expected first-quarter profits results got a boost as consumers began turning toward higher-margin general merchandise items, with spending broadening out beyond just groceries and home essentials. Plus, Walmart's strategic initiatives like its advertising business have begun to grow strongly, freeing up more capital to be invested back in the broader company, according to at least one strategist.
"I think really, though, the story of the quarter is the gross margin gain, up about 100 basis points, really stronger than we've seen it in decades,” DA Davidson Sr. Research Analyst Michael Baker told Yahoo Finance. “And I think that’s a combination of the mix more toward general merchandise, which has been a very positive trend, but also some of the things that they’re doing with their alternative e-commerce businesses, things like advertising, or their third-party platform, which is just starting to take off. And that gives them the ability to invest back in price and other areas.”
10:27 a.m. ET: Walmart, Macy's, Home Depot post stronger-than-expected Q1 earnings as stimulus checks, heightened consumer confidence boost spending
A wave of stronger-than-expected retail earnings results came out Tuesday morning, with each easily topping Wall Street's expectations. A faster than-expected vaccination program in the U.S., multiple rounds of additional stimulus, and ongoing strength in digital sales helped boost results across major retailers.
Walmart (WMT) beat both top and bottom line estimates and boosted guidance for the full year. For the first quarter, adjusted earnings came in at $1.69 per share on revenue of $138.3 billion. Wall Street was looking for adjusted earnings of $1.18 per share on revenue of $131.97 billion. Total U.S. comparable sales excluding gas increased 6.2%. That was more than three times the estimated growth rate, though it did slow from the 10.3% increase in the same quarter last year at the height of pantry-stocking trends during the pandemic. Walmart's U.S. e-commerce sales increased 37%. CEO Doug McMillon said in a statement he anticipates "continued pent-up demand throughout 2021" when it comes to consumer spending, and the company now sees annual earnings per share growth in the high single digits, after seeing a slight decline previously.
Home Depot (HD) also posted stronger than expected first quarter results, underscoring that demand for supplies for home improvement projects carried over from last year into the beginning of this year. Comparable sales were up 31%, or much stronger than the 20% growth rate expected, and earnings per share of $3.86 were greater than the $3.06 expected. While Home Depot did not offer guidance, it did allude to a strong start for the current quarter: Chief Financial Officer Richard McPhail said during the company's earnings call that U.S. comps were above 30% on a two-year-stack in the first two weeks of May, and that "homeowners' balance sheets are healthy."
Macy's (M) also posted stronger-than-expected first-quarter results and guidance, and saw digital sales accelerate to a 34% growth rate from a 21% increase in the fourth quarter. Like Walmart, Macy’s also highlighted the impact from stimulus as well as vaccinations in improving consumer confidence. Chief Financial Officer Adrian Mitchell said during this morning’s earnings call, “The solid results and our improved outlook reflect the benefits from the rapidly improved macroeconomic conditions driven by the government stimulus program as well as heightened consumer confidence resulting from the rollout of the COVID-19 vaccinations.”
9:31 a.m. ET: Stocks open higher, recovering some of Monday's losses
Here's where markets were trading shortly after the opening bell:
S&P 500 (^GSPC): +4.32 (+0.1%) to 4,167.61
Dow (^DJI): +43.19 (+0.13%) to 34,370.98
Nasdaq (^IXIC): +19.98 (+0.1%) to 13,399.03
Crude (CL=F): -$0.17 (-0.26%) to $66.10 a barrel
Gold (GC=F): +$1.60 (+0.09%) to $1,869.20 per ounce
10-year Treasury (^TNX): +0.5 bps to yield 1.645%
8:31 a.m. ET: New homebuilding pulled back more than expected in April
Homebuilding retreated by a greater-than-expected margin in April, with materials shortages and rising prices weighing on housing market activity.
Housing starts fell 9.5% in April over March to a seasonally adjusted annualized rate of 1.569 million, the Commerce Department said Tuesday. This was worse than the drop of 2.0% expected, according to Bloomberg data, and represented the biggest drop since February. Housing starts have declined month-on-month in three of the past four months. In March, housing starts had surged 19.8%, representing some recovery after inclement weather in February impacted construction.
Building permits rose by just 0.3% month-over-month, coming in below the rise of 0.6% expected. This followed a rise of 1.7% in March, which was revised down from the 2.7% increase previously reported.
7:49 a.m. ET: 'We still don't think the pain in Big Tech is done': RBC Capital Markets
With technology and growth stocks see-sawing between gains and losses over the past several weeks, many investors have questioned whether and when last year's leaders might see a rebound. According to at least one Wall Street firm, tech stocks likely still have further to fall.
"We still don't think the pain in Big Tech is done," Lori Calvasina, head of U.S. equity strategy for RBC Capital Markets, wrote in a note Tuesday morning.
"Along with corporate taxes, the style rotation that’s been under way in the U.S. equity market—out of Growth and into Value—has been one of the most popular topics of conversations in our recent meetings with investors," she added.
"We’ve been in the Value camp due to stronger EPS [earnings per share] estimate revisions trends (last seen in 2016), better valuations (which have improved for Growth but are still elevated vs. Value), better flows (quite strong in Value, less so in Growth), and a favorable economic backdrop (real GDP is expected to sustain above-trend growth through 2022, and historically Value beats Growth when real GDP is tracking above 2.5%)," Calvasina said.
7:22 a.m. ET: Stock futures point to a higher open
Here's where markets were trading ahead of the opening bell:
S&P 500 futures (ES=F): 4,169.75, up 12 points or 0.29%
Dow futures (YM=F): 34,343.00, up 87 points or 0.25%
Nasdaq futures (NQ=F): 13,388.75, up 85.25 points or 0.64%
Crude (CL=F): +$0.28 (+0.42%) to $66.55 a barrel
Gold (GC=F): -$0.20 (-0.01%) to $1,867.40 per ounce
10-year Treasury (^TNX): +0.7 bps to yield 1.647%
6:15 p.m. ET Monday: Stock futures open higher
Here were the main moves in markets ahead of the opening bell:
S&P 500 futures (ES=F): 4,161.25, up 3.5 points or 0.08%
Dow futures (YM=F): 34,306.00, up 50 points or 0.15%
Nasdaq futures (NQ=F): 13,317.00, up 13.5 points or 0.1%
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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