Wall Street closes lower after Home Depot outlook, US retail sales

Except for the Nasdaq which had a healthy day in the black until about 3:30 p.m. when it dropped through the floor, all the indexes spent the day well into the red and, again, dropping dramatically right about 3:30 p.m.  Most of the downside was triggered by a decline in Home Depot attributed to people weary of spending on the house and switching their spending to going out and doing other things, prompting the retailer to a cut in their sales and profits forecast. Lowe’s also fell.  

Retail sales overall came in softer than expected though, truth be told, the expected increase was so slight to begin with (less than 1%) that the actual smaller increase (just under ½%) should not have upset anyone; yet it did. And core retail sales actually rebounded! So why this very small variance would have caused such a big selloff is anyone’s best guess except that it’s likely continuing nerves over rate hikes and the debt ceiling. There is a very instructive graph below showing just how much inflation has gone down this past year vs how much retail sales have increased, inflation being down quite a bit, sales being up.  Volume is still quite thin at about 9.4 billion. 

Tue May 16, 2023  4:38 PM

Wall Street closes lower after Home Depot outlook, US retail sales

By Chuck Mikolajczak

DJ: 33,348.60  +47.98          NAS: 12,365.21  +80.47        S&P: 4,136.28  +12.20     5/15

DJ: 33,012.14  -336.46         NAS: 12,343.05  -22.16         S&P: 4,109.90  -26.38      5/16

May 16 (Reuters) - U.S. stock indexes closed lower on Tuesday after a disappointing forecast from Home Depot and U.S. retail sales data for April pointed to softer consumer spending, while uncertainty about interest rates and debt limit negotiations weighed on sentiment.  Home Depot (HD.N) declined 2.15% as one of the biggest drag on both the Dow Industrials and S&P 500 after the home improvement retailer cut its annual sales forecast and projected a steeper-than-expected decline in profit. Shares of peer Lowe's Companies Inc (LOW.N) fell 1.16%.

"You can argue that people are tired of spending on the house, they want experiences, they want to go out they want to do other things, they don’t want to fix up the house according to Home Depot, because they had horrendous earnings," said Ken Polcari, managing partner at Kace Capital Advisors in Boca Raton, Florida.

The Commerce Department reported retail sales rose 0.4% in April, short of the estimate for an increase of 0.8%. But core retail sales rebounded, a figure excluding automobiles, gasoline, building materials and food services.

    Retail sales

"There is a sense that people are starting to get a little bit more sensitive to the Fed being successful and this ongoing drama of the debt ceiling is causing angst."

The Dow Jones Industrial Average (.DJI) fell 336.46 points, or 1.01%, to 33,012.14, the S&P 500 (.SPX) lost 26.38 points, or 0.64%, to 4,109.9 and the Nasdaq Composite (.IXIC) dipped 22.16 points, or 0.18%, to 12,343.05.

Recent data has indicated slowing in the U.S. economy following a string of rate hikes by the Federal Reserve to fight high inflation. That slowing along with recent negotiations over the U.S. debt ceiling has focused attention on when the central bank will pause hiking, or cut interest rates.

While the market is currently pricing in a rate cut by the end of the year, recent comments from Fed officials suggested they are not ready to cut rates soon.  Richmond Fed President Thomas Barkin said he was "comfortable" with raising interest rates further if needed, but liked the "optionality" implied in the latest policy statement.  Cleveland Fed President Loretta Mester said she does not think the central bank can hold interest rates steady yet.  Lawmakers held a new round of talks about raising the debt ceiling. The Treasury Department has warned it could run out of money as soon as June 1 without a deal, which would trigger a default and likely cause a sharp economic slump.

Horizon Therapeutics (HZNP.O) tumbled 14.17% as the Federal Trade Commission said it would file a lawsuit to block Amgen Inc's (AMGN.O) $27.8 billion deal to buy the company. Shares of Amgen fell 2.42%.  The decline in both stocks weighed on the Nasdaq Biotech Index (.NBI), which closed at a three-week low after dropping 2.44%, its biggest one-day percentage decline in three months.  Shares of Capital One Financial Corp (COF.N) climbed 2.05% the day after Berkshire Hathaway Inc (BRKa.N) disclosed it had taken a stake of nearly $1 billion in the stock.

Declining issues outnumbered advancing ones on the NYSE by a 4.05-to-1 ratio; on Nasdaq, a 2.28-to-1 ratio favored decliners.  The S&P 500 posted 12 new 52-week highs and 13 new lows; the Nasdaq Composite recorded 47 new highs and 188 new lows.

Volume on U.S. exchanges was 9.36 billion shares, compared with the 10.58 billion average for the full session over the last 20 trading days.