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Market Snapshot: U.S. stocks fall sharply after 5 day run of records

U.S. stocks edged lower Tuesday afternoon, threatening to end 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 on concern the spread of the delta variant of the coronavirus may slow economic growth.

What’s happening
  • The Dow Jones Industrial Average
    DJIA,
    -0.98%

    fell 374.61 points, or 1.1%, to 35,250.79.
  • The S&P 500
    SPX,
    -0.90%

    dropped 44.10 points, or 1%, to 4,435.61.
  • The Nasdaq Composite
    COMP,
    -1.08%

    declined 177.16 points, or 1.2%, to 14,616.61.

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’s driving markets

Stocks fell 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.

Restaurants and bars are the only services category in the retail sales report. Retail sales are mostly goods, with services such as healthcare, education, travel and hotel accommodation making up the remaining portion of consumer spending.

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,
-0.05%

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 was 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.

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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,
-4.79%
,
Baidu
BIDU,
-3.02%

 and JD.com
JD,
-3.55%

slumping.

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Which companies are in focus?
  • Shares of Dow component Walmart were little changed, after the retailing giant reported stronger-than-expected second-quarter sales and earnings and lifted its outlook for sales growth.
  • Home Depot Inc.
    HD,
    -4.30%

    shares fell 4.5%, 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,
    -1.43%

    shares fell about 1%, after the social-gaming platform’s results late Monday came in below Wall Street expectations.
What are other markets doing?
  • The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    1.259%

    was about 2 basis points lower at 1.255%. 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 were lower in choppy trade, with the U.S. benchmark
    CL.1,
    -0.86%

    down 1% at $66.64 a barrel. Gold futures
    GC00,
    -0.28%

    edged 0.2% lower to $1,786 an ounce.
  • 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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