How stocks traded
- The Dow Jones Industrial Average DJIA finished down 361.24 points or 1.02% to 34,946.39
- The S&P 500 SPX closed 51.86 points or 1.16% lower at 4,437.86
- The Nasdaq Composite COMP declined 157.28 points or 1.14% to 13,631.05
On Monday, the Dow Jones Industrial Average rose 26 points, or 0.07%, to 35308, the S&P 500 increased 26 points, or 0.58%, to 4490, and the Nasdaq Composite gained 143 points, or 1.05%, to 13788.
What drove markets
Concerns about a faltering Chinese economy were again dampening global risk appetite while investors in U.S. stock markets were also gauging what a strong consumer means for the economy and the Fed’s interest rate policies.
Data released Tuesday showed Chinese retail sales and industrial production in the world’s second biggest economy grew less than expected in July. The news, which followed other recently disappointing data, comes as signs of severe distress in the property sector emerge, prompting a series of interest rate cuts by the central bank in Beijing.
The unexpected monetary policy easing, alongside news that Chinese authorities would stop publishing youth unemployment data, seemed to only spook markets further.
In the mix of news dragging down markets on Tuesday, China looms large, said David Sekera, chief U.S. market strategist at Morningstar. China’s surprise interest rate cut is “raising fears that Chinese real estate valuations and economy may be in more trouble than feared,” he said.
Meanwhile in U.S. economic news, retail sales increased 0.7% in July, above the 0.4% forecast. Stripping out auto sales, they grew 1%. The strength was uneven, with sales falling at car dealers, furniture stores and big-box retailers offering consumer electronics.
Also, the August Empire State New York manufacturing survey for August dropped to negative 19 from 1.1 in July. Home builder confidence also fell, according to the National Association of Home Builders’ index for August. It was the first decline in eight months, dragged lower by high and rising mortgage rates, along with challenges for the construction process.
The fear is that hot retail sales could mean higher Fed interest rates for longer. Quincy Krosby, LPL Financial’s chief global strategist, said the latest retail sales report adds to those concerns. “It’s not great news when you want the Fed to finish,” Krosby said, of its rate hikes. It’s also another phase in the “open tug of war” between the bears and bulls right now, she added.
Minneapolis Federal Reserve President Neel Kashkari said inflation is still too high. “The question on my mind is, have we done enough to actually get inflation all the way back down to our 2% target. Or do we have to do more,” he said at a Tuesday morning event. Kashkari is currently a voting member for the Fed’s interest rate committee.
Financial stocks also fell on Tuesday, after FDIC Chairman Martin Gruenberg said large regional banks should face new rules and tougher oversight.
In addition, Fitch analyst Chris Wolfe said the debt rating agency may be forced to downgrade many U.S. banks, after it posted a ratings watch in June. If Fitch downgrades the industry by one notch to AA- from A+ it would have to re-evaluate ratings on more than 70 U.S. banks it covers, Wolfe said in an interview with CNBC.
See: Financial stocks among worst performers in S&P500 after facing multiple headwinds on Tuesday
Looking ahead, investors will get a further look at Americans’ wallets later in the week. Target Corp. TGT, -2.55% and TJX Cos. TJX, -0.51% report their earnings Wednesday. Walmart WMT, -0.51% and Ross Stores ROST, -0.10% report on Thursday.
As the second quarter earnings reporting season winds down, Morningstar’s Sekera said investors are also “hearing more cases of management providing softer than hoped for guidance as opposed to earlier in earnings season.”
Companies in focus
- D.R. Horton Inc. DHI, +2.89% and Lennar Corp. LEN, +1.77% stocks gained ground after Warren Buffett’s Berkshire Hathaway Inc. BRK.A, -0.93% BRK.B, -1.11% revealed new positions in the home-building names. D.R. Horton shares closed 2.9% higher, while Lennar shares ended up 1.8% Tuesday.
- Home Depot Inc. HD, +0.66% shares closed up 0.7% after the home-improvement retailer’s second-quarter earnings fell, but still beat estimates, it backed its guidance and announced a $15 billion share buyback program.
- Bank of New York Mellon Corp.’s BK, -1.73% stock slid 1.7% after Berkshire also disclosed it had dumped its entire stake in the regional bank.
- KeyCorp. KEY, -3.45% ended down 3.5%, Comerica Inc. CMA, -4.49% closed down 4.5%, Citizens Financial Group CFG, -4.36% Capital One Financial Corp. COF, -2.06% was down 4.4% and fell 2.1%.