Dow sheds 120 points as stocks head for February decline

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Stocks were mixed Tuesday afternoon, but on pace to book monthly losses in February, on concerns about the drag of stubborn inflation in America and abroad, and rising interest rates.

How stocks are trading

  • The Dow Jones Industrial Average dropped 127 points, or 0.4%, to 32,765
  • The S&P 500 gained 9 points, or 0.2%, to 3,991
  • The Nasdaq Composite climbed 70 points, or 0.6%, to 11,538

Stocks logged small gains Monday, but with the S&P 500 still down 2.3% for the month through Monday’s close, while the Dow was down 3.5%. The Nasdaq Composite also declined in February, but remains up nearly 10% for the year to date.

What’s driving markets

More evidence that high inflation is proving sticky in developed economies was forcing bond yields higher and pressuring stocks Tuesday. Investors also were weighing consumer-facing earnings results and domestic data on housing and the consumer’s mood.

“I think the retail customer is going to be the focus this week,” said Brian Overby, senior market strategist at Ally, adding that while recent earnings reports from Target Corp. and Walmart Inc. have been fairly decent, top executives also have been striking a cautionary tone on consumer spending going forward.

“The fact that we have such a resilient consumer has really kept the markets at bay,” Overby said.

On deck next for Wednesday are earnings from Lowe’s Cos. Kohl’s Corp and the Dollar Tree Inc.

In the past, stock-market investors would cheer a strong consumer, but not when wages have been climbing and as the Federal Reserve tries to tamp down inflation, including by raising interest rates into restrictive territory.

By several key measures, the Fed already has made notable progress in raising borrowing costs. Yields on Treasury debt, including the 2-year note, have increased sharply in February. The yield on the 2-year note held near almost 16-year highs Tuesday. At the same time, the rate on the 6-month Treasury bill hit 5.14% on Tuesday, a point heading for highest level since February 2007.

Even so, high costs of living have remained a global dilemma for central banks. Data from France and Spain on Tuesday showed consumer price increases accelerating this month, raising the prospects that the main eurozone inflation numbers for February, due Thursday, will come in hotter than forecast.

This follows last Friday’s U.S. PCE reading, which also pointed to inflation proving more stubborn than hoped.

Heightened concerns about tighter Fed monetary policy had the S&P 500, Dow and Nasdaq each on pace to end February with a loss, while also booking their worst monthly declines since December, according to preliminary Dow Jones Market Data.

Even with all the downward pressure, some investors see buying opportunities. That’s what might be explaining the mixed ground for the moment with the tech-heavy, growth-oriented Nasdaq in positive territory, said Josh Markman, partner at Bel-Air Investment Advisors.  

“Right now, when you look at what’s cheap, I think people are feeling that growth stocks are — on a relative basis to where they’ve been, a good value,” Markman said.

Overby at Ally said high inflation and elevated interest rates likely boil down to a “choppy” landing for the U.S. economy, leaving the stock market prone to daily swings of 1% or more, based on good or bad news. “It’s so hard being in this market and trying to give it a direction,” he said. “If we get back to the October lows, I think you would have a strong buying opportunity.”

Government data showed the trade deficit in goods increased 2%, to $91.5 billion last month, a three-month high. Retail inventories increased 0.3% while wholesale inventories decreased 0.4%.

Meanwhile, consumer confidence dropped in February, decreasing to 102.9 from 106. That’s a three-month low for the gauge from the Conference Board. “Deteriorating views about the future suggest that consumers are apprehensive about the unknown impacts from higher interest rates and prolonged debt ceiling debates, “ said Jeffrey Roach, LPL Financial’s chief economist. 

The Case-Shiller home price index for January dropped 0.5% in December, the sixth monthly decline.

Tuesday’s Fed speak comes from Austan Goolsbee, the new Chicago Fed President. He’s due to speak at 2:30 p.m.

Companies in focus

  • Goldman Sachs Group Inc. shares were 2.9% lower Tuesday as the investment bank kicked off its first investor day in three years, with CEO David Solomon saying the bank will focus on wealth management and investment banking, after disclosing in January a $3 billion loss since 2020 in its consumer-lending unit.
  • Target Corp. shares were up 2.9% on the heels of the retailer’s fourth quarter earnings. Target’s revenue, profit and earnings per share all beat analyst expectations, but its outlook was below FactSet consensus. That includes an expected $1.50 to $1.90 adjusted EPS compared with FactSet consensus of $2.15.
  • Shares of J.M Smucker Co. were 0.5% lower after earnings results from the consumer and pet foods company. The company beat on its earnings and raised its outlook on earnings per share.
  • Norwegian Cruise Line Holdings Ltd.  shares were more than 11% lower after a wider-than-expected loss in the cruise operator’s earnings results, despite a revenue beat.

–Additional reporting by Jamie Chisholm

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