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Market Snapshot: Dow, S&P 500 snap run of record highs as stocks end lower after disappointing retail sales

U.S. stocks closed lower Tuesday, ending a five-day run of record finishes for the Dow Jones Industrial Average and S&P 500 indexes, after July retail sales came in weaker than expected and concern grew about the spread of the delta variant of the coronavirus which may slow economic growth.

What did the major indexes do?
  • The Dow Jones Industrial Average
    DJIA,
    -0.79%

    fell 282.12 points, or 0.8%, to 35,343.28.
  • The S&P 500
    SPX,
    -0.71%

    dropped 31.63 points, or 0.7%, to 4,448.08.
  • The Nasdaq Composite
    COMP,
    -0.93%

    declined 137.58, or 0.9%, to 14,656.18.

U.S. stocks recovered Monday from early losses, and the S&P 500 notched its 49th record close of 2021. The S&P 500 and Dow Jones Industrial Average each established a fifth straight record close, while the Nasdaq Composite weakened by 0.2%.

What drove markets?

Stocks ended lower Tuesday after investors evaluated the latest economic data against a backdrop of increased concern over the delta variant of the coronavirus.

Retail sales fell 1.1% in July, and were down 0.4% after excluding autos. Economists polled by The Wall Street Journal had penciled in a 0.3% monthly drop in sales in July, or a 0.2% gain when autos are excluded.

That’s “disappointing,” said Randy Frederick, managing director of trading and derivatives at Charles Schwab, in a phone interview Tuesday. Still, the market had a “fairly benign” reaction to the decline, as stock futures were pointing down before the retail sales data was released, he said. 

In Frederick’s view, investors probably are also expressing concern over the delta variant spreading around the U.S., with increasing discussion surrounding “booster shots.” And on top of that, geopolitical risks linked to the Taliban’s faster-than-expected takeover of Afghanistan is adding some volatility to a market that’s more sensitive as it’s been trading around all-time highs, he said.

“There are a lot of crosscurrents,” without one single concern standing out as serving a “big blow” to the market, said Yung-Yu Ma, chief investment strategist at BMO Wealth Management, in a phone interview Tuesday. “It’s more a death by a thousand cuts right now.”

U.S. retail sales fell as supply disruptions weighed on automobile purchases, with sales at auto dealerships down 3.9% after declining 2.2% in June. Vehicle production has been hampered by a global shortage of semiconductors. Meanwhile online purchases dropped after Amazon pulled forward its Prime Day sale to June from July.

The fall in retail sales “could be a sign that the rapid spread of the delta coronavirus variant is convincing some consumers to stay away from public spaces again and is consistent with real consumption growth slowing sharply in the third quarter,” said Andrew Hunter, senior U.S. economist at Capital Economics, in a note.

The Biden administration is preparing to announce that most vaccinated Americans should get a COVID-19 booster shot eight months after being fully vaccinated, the New York Times reported Monday night.

In corporate earnings, Walmart Inc.
WMT,
-0.03%

reported on Tuesday results that highlighted a strong start for the back-to-school season as they raised guidance, said Lindsey Bell, chief investment strategist at Ally Invest. And year-over-year retail-sales growth remained impressive, up 15.8%, she noted, in emailed comments, with apparel and restaurant sales up significantly.

“While spending may slow in the near-term as the delta variant is present and the pricing of goods and services adjust to the supply and demand picture, I remain encouraged for the spending into the holidays and end of year,” Bell said.

In other U.S. economic data Tuesday though U.S. industrial production rose a seasonally adjusted 0.9% in July, the Federal Reserve reported Tuesday. That’s a fastest pace since March and follows a revised 0.2% gain in June.

The National Association of Home Builders’ monthly confidence index fell five points to a reading of 75 in August, the trade group said Tuesday, its lowest in 13 months.

Investors are also looking to next week’s Jackson Hole central banker symposium for an update on Federal Reserve Policy. Fed chairman Jerome Powell talked to teachers and students from around the country Tuesday afternoon and said the ultimate impact of COVID’s delta variant on the U.S. economy remains unknown.

Inflation poses an even bigger risk to markets than Covid-19, according to Scott Wren, senior global market strategist at Wells Fargo Investment Institute. 

“It’s not our base case that it gets out of hand,” he said in a phone interview Tuesday. “But the biggest risk to our outlook is that inflation doesn’t decelerate over the next 12 to 18 months.”

Need to Know: Here’s what Vanguard found to be the most potent inflation-fighting asset class

Fund managers, meanwhile, are taking slightly more defensive positions as they grow more pessimistic on the economy and corporate profits, according to the latest monthly survey conducted by Bank of America, which was released Tuesday.

Global fund managers have increased their holdings in healthcare, insurance, utilities and cash, while trimming their exposure to materials, commodities, emerging markets and energy, the survey found.

Also of note, the Hang Seng
HSI,
-1.66%

slumped 1.7% in Hong Kong and the Shanghai Composite
SHCOMP,
-2.00%

dropped 2% Tuesday after China published draft rules on competition and data security in the technology sector. Chinese stocks listed in the U.S. fell too, with Alibaba
BABA,
-4.91%
,
Baidu
BIDU,
-2.86%

 and JD.com
JD,
-3.61%

slumping.

Don’t miss: Welcome to MemeMarkets, your guide to the world of ‘Stonks’

Which companies were in focus?
  • Shares of Dow component Walmart were little changed, dipping less than 0.1% after the retailing giant reported stronger-than-expected second-quarter sales and earnings and lifted its outlook for sales growth.
  • Home Depot Inc.
    HD,
    -4.27%

    shares fell 4.3%, leading losses for Dow components, after the home improvement retailer reported fiscal second-quarter profit and record sales that topped expectations but same-store sales that came up short
  • Roblox Corp.
    RBLX,
    -1.12%

    shares fell 1.1%, after the social-gaming platform’s results late Monday came in below Wall Street expectations.
What did other markets do?
  • The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    1.264%

    was little changed at 1.258%. Yields and debt prices move in opposite directions.
  • The ICE U.S. Dollar Index
    DXY,
    +0.54%
    ,
    a measure of the currency against a basket of six major rivals, rose 0.5%.
  • Oil futures extended their losing streak to a fourth session, with the U.S. benchmark
    CL.1,
    -1.06%

    down 1% to settle at $66.59 a barrel. Gold futures
    GC00,
    -0.09%

    settled 0.1% lower at $1,787.80 an ounce, the first loss in 3 sessions.
  • In European equities, the Stoxx Europe 600
    SXXP,
    +0.07%

    edged up 0.1%, while London’s FTSE 100
    UKX,
    +0.38%

    rose 0.4%.
  • Japan’s Nikkei 225
    NIK,
    -0.36%

    fell 0.4%.

—Steve Goldstein contributed to this report.

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