Nasdaq, S&P, Dow slip as retail sales data weighs on Fed pivot hopes; Target slumps
U.S. stocks were on track to end lower on Wednesday, after stronger than expected retail sales data tempered some expectations on policy tightening by the Federal Reserve. A disappointing holiday quarter guidance by Target also weighed on the mood.
With less than half an hour of trading left, the tech-heavy Nasdaq Composite (COMP.IND) had slipped 1.58% to 11,179.31 points. The benchmark S&P 500 (SP500) had lost 0.78% to 3,960.42 points. The Dow (DJI) was down by 0.07% at 33,569.09 points.
Of the 11 S&P sectors, nine were trading in the red. Energy and Consumer Discretionary were the top losers. Utilities and Consumer Staples were the sectors that advanced.
Retail sales in October rose 1.3% versus a forecasted figure of a 1% gain. Core retail sales also increased more than expected to 1.3% compared to an expectation of +0.4%. The data indicated that consumer demand for goods and products was relatively holding up well despite soaring inflation and high interest rates.
Strong core retail sales figure "puts the market’s estimation of terminal interest rates at risk," Renaissance Macro tweeted. "As Powell has said, we don’t know what the path will be but we know it will be enough."
U.S. stocks have made major gains the last week and over the past two days, fueled by softer October CPI and PPI data that pointed towards a moderation in inflation and sparked hopes of the Fed slowing down its aggressive pace of rate hikes.
Central bank Governor Christopher Waller in a prepared speech said that the recent data had made him feel "more comfortable" with a 50-basis-point rate hike at the Fed's December meeting.
According to the CME FedWatch tool, markets are now pricing in a 85.4% probability of a 50 bps hike at the December meeting, up from a 80.6% just two days ago.
In other economic data on Wednesday, October industrial production data came in softer than expected at -0.1% versus a forecasted rise of 0.2%.
November NAHB Housing Market Index fell for the 11th straight month to 33 compared to the forecasted 36, while November Atlanta Fed Business Inflation Expectations came in unchanged at +3.3%.
In earnings news, Target (TGT) slumped after the retail giant missed profit estimates and lowered its guidance for the holiday quarter. The slide in its shares weighed on other retail names and retail exchange traded funds. Advance Auto Parts (AAP) also slid on a disappointing quarterly report. Both companies were among the top percentage losers on the S&P. In a bright spot, home improvement retailer Lowe's (LOW) advanced after exceeding earnings expectations.
Chip giant NVIDIA (NVDA) and Dow 30 component Cisco (CSCO) are among big names on tap to report their results after the bell.
Among other movers, shares of cruise operator Carnival (CCL) sunk on news of a senior note offering.
Investors were also keeping an eye on the geopolitical situation in Europe. Reports the previous day that a Russian missile had struck Poland had added to escalation fears, but those worries eased on Wednesday after Poland and NATO said the missile was probably a stray fired by Ukraine's air defenses.
Turning to rates, the 10-year Treasury yield (US10Y) was down 12 basis points to 3.68%, while the 2-year yield (US2Y) - which is seen to be more sensitive to the Fed's moves - was down 1 basis point to 4.35%. The inversion of the curve between the two has reached levels not seen since 1982.
Federal Reserve Vice Chair of Supervision Michael Barr, while addressing the Committee on Financial Services, said that he's paying close attention to growing concerns about liquidity issues in the Treasury market.
The dollar index (DXY) was -0.1% at 106.26.