Stocks fall as traders digest Powell comments, mixed retail earnings

U.S. stocks fell Wednesday to give back some gains from the previous session, as investors further considered remarks from Federal Reserve Chair Jerome Powell that the central bank was set on using its policies to bring down inflation still running at multi-decade highs.

The S&P 500 fell by more than 1% just after the opening bell. The move reversed gains from the prior session, when the blue-chip index gained 2%. The Dow and Nasdaq each also opened lower by more than 1%.

Investors have been weighing upbeat reports on U.S. economic activity against remarks from Federal Reserve officials that the central bank was set to act aggressively to rein in rising prices. Tuesday’s at least short-lived rally came following a couple of solid reports on U.S. economic activity, showing both consumer spending and manufacturing production were holding up strongly. U.S. retail sales grew at a 0.9% rate in April after a sharply upwardly revised 1.4% monthly rise in March, suggesting consumers were continuing to spend even as consumer prices have climbed at the fastest rate since the 1980s. The latest print on U.S. industrial production also exceeded estimates with a jump of 1.1% last month, or more than double the expected rise.

The reports reflected ongoing resilience in some of the key components of domestic activity and helped at least temporarily assuage concerns that the U.S. economy might be imminently tumbling into a downturn. And a still-strong economic backdrop has given the Federal Reserve more room to raise interest rates and otherwise tighten monetary policy to bring down inflation without fear of deeply disrupting growth in other areas like the labor market.

Fed Chair Powell acknowledged to the Wall Street Journal on Tuesday that while “there could be some pain involved in restoring price stability,” he believed the Fed will be able to “sustain a strong labor market.” Powell also said that there remained “broad support” for two more 50 basis point interest rate hikes at the Fed’s next policy-setting meetings, reiterating his view from the Fed’s last meeting earlier this month.

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“I don’t think he said anything that caught us off guard … but let’s not forget where we are,” Ryan Detrick, LPL Financial Chief Market Strategist, told Yahoo Finance Live on Tuesday, noting that the S&P 500 has fallen for six consecutive weeks heading into this week. “It hasn’t been down seven weeks in a row for 20 years, so we’re awfully oversold here. Then you come in today and you’ve got industrial production pretty solid, you’ve got retail sales pretty solid. Things aren’t perfect, but we just think so much of the negativity that is priced in … it’s just a little overboard for us, and we think this could very well be an opportunity for some of the longer-term investors here.”

Still, however, concerns over elevated prices, geopolitical concerns in Ukraine and virus-related disruptions in China remain risks to equities. And though consumers have still been spending amid rising inflation, that’s come as many companies have been absorbing increasing labor, raw materials and transportation costs. Walmart (WMT) on Tuesday reported weaker-than-expected quarterly earnings and slashed its profit outlook for the year, citing higher wages and fuel and food costs. Peer big-box retailer Target (TGT) also cut its full-year operating income margin outlook as input and transportation costs remain elevated.

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9:34 a.m. ET: Stocks open lower, giving back some of Tuesday’s gains

Here were the main moves in markets as of 9:34 a.m. ET:

• S&P 500 (^GSPC): -47.92 (-1.17%) to 4,040.93

• Dow (^DJI): -313.94 (-0.96%) to 32,340.65

• Nasdaq (^IXIC): -167.82 (-1.40%) to 11,816.70

• Crude (CL=F): +$1.42 (+1.26%) to $113.82 a barrel

• Gold (GC=F): -$8.10 (-0.45%) to $1,810.80 per ounce

• 10-year Treasury (^TNX): +1.4 bps to yield 2.9820%

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7:42 a.m. ET: Stock futures drop

Here’s where markets were trading Wednesday morning:

• S&P 500 futures (ES=F): -30.25 points (-0.74%) to 4,054.50

• Dow futures (YM=F): -187 points (-0.57%) to 32,394.00

• Nasdaq futures (NQ=F): -130.74 points (-1.04%) to 12,429.50

• Crude (CL=F): +$1.32 (+1.17%) to $113.72 a barrel

• Gold (GC=F): -$5.70 (-0.31%) to $1,813.90 per ounce

• 10-year Treasury (^TNX): +2.7 bps to yield 2.997%

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7:38 a.m. ET: Lowe’s first-quarter revenue disappoints as cooler temperatures weighed on home improvement sales

Lowe’s (LOW), the country’s second-largest home improvement giant, posted top-line results that came in short of Wall Street’s expectations as cooler-than-average temperatures early this spring weighed on some demand. Shares fell 2.3% in pre-market trading.

Comparable sales fell 4% for the first quarter, Lowe’s said, with the drop coming in steeper than the 3.25% decrease expected, according to Bloomberg data. Closely watched U.S. comparable sales alone decreased by 3.8%. However, on the bottom-line, earnings per share of $3.51 exceeded expectations.

“Our sales this quarter were in line with our expectations, excluding our outdoor seasonal categories that were impacted by unseasonably cold temperatures in April,” Lowe’s CEO Marvin Ellison said in a press statement. “Because 75% of our customer base is DIY, our Q1 sales were disproportionately impacted by the cooler spring temperatures. Now that spring has finally arrived, we are pleased with the improved sales trends we are seeing in May.”

Lowe’s reiterated its full-year forecast for earnings per share to come in between $13.10 and $13.60. Comparable sales will be in a range of down 1% to up 1%, Lowe’s added.

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7:32 a.m. ET: Mortgage applications fell by the most since February last week

U.S. mortgage applications slid by the most since mid-February last week as mortgage rates jumped to their highest level since 2009, deterring some refinancers and buyers from the market.

The Mortgage Bankers Association’s weekly index tracking mortgage loan application volume slid 11% week-on-week during the period ended May 13, according to the firm’s latest report. Refinances dropped by 10% from the previous week and cratered by 76% compared to the same week last year. Purchases, on a seasonally unadjusted basis, were down by 12% from the prior week and by 15% from the comparable week in 2021.

“For borrowers looking to refinance, the current level of rates continues to be a significant disincentive,” Joel Kan, MBA’s associate vice president of economic and industry forecasting, said in a press statement. “Purchase applications fell 12% last week, as prospective homebuyers have been put off by higher rates and worsening affordability conditions. Furthermore, general uncertainty about the near-term economic outlook, as well as recent stock market volatility, may be causing some households to delay their home search.”

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7:22 a.m. ET Wednesday: Target shares slide after company cuts full-year profit guidance on higher costs

Target posted first-quarter earnings and full-year profit guidance that disappointed Wall Street, with higher costs expecting to keep cut into the margins for the big-box retailer. Shares fell more than 20% in pre-market trading.

Target’s adjusted earnings came out to $2.19 per share for the first quarter, coming in below estimates for $3.06 apiece, according to Bloomberg data. However, like peer retail giant Walmart, sales for the quarter still exceeded estimates, with comparable same-store sales up 3.3% versus the 1.17% rise expected.

For the full year, Target now expects its full-year operating income margin rate to be “in a range centered around 6%,” the company said in its earnings statement. That compares to a prior view of an at least 8% operating income margin rate this year.

“Throughout the quarter, we faced unexpectedly high costs, driven by a number of factors, resulting in profitability that came in well below our expectations, and well below where we expect to operate over time,” Target CEO Brian Cornell said in a press statement. “Despite these near-term challenges, our team remains passionately dedicated to our guests and serving their needs, giving us continued confidence in our long-term financial algorithm, which anticipates mid-single digit revenue growth, and an operating margin rate of 8% or higher over time.”

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6:10 p.m. ET Tuesday: Stock futures resume declines

Here’s where markets were trading Tuesday evening:

• S&P 500 futures (ES=F): +9.5 points (+0.23%) to 4,094.25

• Dow futures (YM=F): +67 points (+0.21%) to 32,648.00

• Nasdaq futures (NQ=F): +27 points (+0.21%) to 12,587.25

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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter.

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