Stock futures fall after retail sales disappoint, earnings come in mixed

Stocks fell on Tuesday, with the major indexes pulling back from record levels amid a mixed batch of earnings results from major retailers. A closely watched monthly report on retail sales also missed estimates, pointing to a bigger-than-expected deceleration in consumer spending.

The S&P 500 declined after closing at an all-time high by the end of Monday’s session. That marked the index’s fifth consecutive record close. The Dow and Nasdaq also traded lower.

Shares of Dow component Walmart (WMT) fell even after the big-box retailer posted second-quarter results that blew past estimates and raised its full-year guidance. Stimulus check spending, strong grocery demand and e-commerce sales helped push U.S. comparable sales excluding gas up by 5.5%, topping estimates but still slowing from last year’s 9.9% surge. 

Home Depot (HD), meanwhile, missed on comparable sales for the second quarter, with these rising 4.5%, or more than a full percentage point below consensus estimates. The results appeared to reinforce the slowdown in housing market activity and home renovations after a jump earlier on during the pandemic, and shares of peer home improvement giant Lowe’s (LOW) fell in sympathy. 

Even with Tuesday’s early declines, the major stock indexes have been largely grinding higher as a slew of strong corporate earnings results and solid economic data in the U.S. buoyed investor sentiment. The gains on Monday came even as geopolitical concerns loomed, with chaos in Afghanistan continuing from the weekend after the Taliban overtook the country. 

The spread of the Delta variant has also posed a risk to equities, as has the specter of a near-term policy shift from the Federal Reserve. On the latter front, market participants are set to receive the Federal Open Market Committee’s July meeting minutes on Wednesday, offering more context around how much more amenable central bank officials have become to the notion of tapering their crisis-era asset purchases as the economic recovery takes place. 

“There are a lot of reasons for anxiety among investors in the short term if you look at the Delta variant, of course, if you look at the inflationary outlook, if you look at U.S. policy uncertainty and kind of continued choppy economic data. We think that there is a chance that we’ll see some shorter-term consolidation here over the next month or two,” Jon Adams, BMO Global Asset Management senior investment strategist, told Yahoo Finance. 

“But if you look at a medium-term perspective, we think that we’re pretty constructive on the outlook,” he added. “Earnings season’s been exceptional, the economy remains strong … We’ll get a lot more clarity in the fall around policy and around the virus. We think that it’s still a time to remain overweight equities and with a bias toward U.S. equities.”

12:44 p.m. ET: Recent, strong data on jobs, inflation suggests strength in value stocks: Strategist 

U.S. Treasury yields have recovered from lows of below 1.2% in recent weeks, largely on the heels of strong economic data on the labor market and inflation fronts. According to at least one strategist, the pick-up in economic activity and yields may bode well for cyclical and value stocks going forward. 

“[We have] more than a few potential Fed policy-related catalysts for equities on the horizon. We get the July FOMC minutes tomorrow, from which our economics team expects some guidance on timing and scope of taper ahead of Jackson Hole late next week and September FOMC,” Maxwell Grinacoff, BNP Parisbas equity derivative strategist, told Yahoo Finance.

“We’ve already started to see a bit of a backup in yields over the last couple of weeks on pretty strong jobs and inflation data,” he added. “We’re using this as a playbook for the value and growth trade in the equity space, if we do in fact see higher yields and the deliverance of a fiscal reconciliation package through the balance of Q3 into Q4. And in terms of value, we would more selectively focus on the quality side of value as well as the commodity- and cyclical-oriented parts of the market like materials and industrials.” 

11:16 a.m. ET: ‘We have to consider the opportunity cost of not making these investments,’ Yellen says, redoubling support of Biden’s infrastructure plan 

U.S. Treasury Secretary Janet Yellen doubled down on her support of President Joe Biden’s plans increase investments in physical and human infrastructure in an op-ed published on Yahoo Finance Tuesday. Last week, the U.S. Senate passed a more than $1 trillion physical infrastructure plan with bipartisan support, and passed the blueprint for a $3.5 trillion budget resolution that would further bolster the social safety net and address climate change. 

“Some have asked: “Are we overinvesting here?” My response is ‘no,’ and there are at least three compelling reasons,” Yellen wrote, with emphasis hers. 

First, she said now is the right time to make investments, given real interest rates are currently negative. Second, the investments are “fiscally responsible” because they are spread out over time and amount to 1% of overall GDP over the course of a decade, she added. 

“Third, and most importantly, we have to consider the opportunity cost of not making these investments,” Yellen said. “We’ve grown used to America as the world’s greatest economic power, but we aren’t destined to stay that way.”

10:31 a.m. ET: ‘It’s almost unquestionable’ that the second-quarter will be the peak growth rate for earnings: Strategist 

Second-quarter earnings results have been tracking exceptionally strongly, with S&P 500 earnings on track to grow 89.3% for the highest year-on-year pace since late 2009. 

“It’s almost unquestionable for the second-quarter to be peak, not growth, but growth rates,” Liz Ann Sonders, Charles Schwab chief investment strategist, told Yahoo Finance. “Earnings will continue to grow. I think the consensus for the third quarter is close to 30%, but I don’t think we’re going to beat the nearly 100% gain in the second quarter.”

“I think what’s really key looking ahead is the profit margin story, which so far, they’ve been maintained at a a very high level,” she added. “But given the ongoing widespread between input prices and final goods prices, I think the profit margin story becomes maybe even more important than the headline earnings story next quarter.”

10:02 a.m. ET: Manufacturing production accelerates more than expected in July 

U.S. manufacturing production jumped by the most since March in July, driven by boosted auto manufacturing as vehicle producers worked to offset a global chip shortage from earlier this year. 

Manufacturing production increased at a 1.4% clip in July, a new Federal Reserve report showed on Tuesday, for a print double the rate consensus economists expected, based on Bloomberg data. In June, production fell by 0.3%, with this drop revised from the 0.1% dip previously reported. Auto production specifically increased 11.2%. 

Industrial production overall also accelerated in July, rising 0.9% after a 0.2% increased in June. This was also well above the 0.5% rise anticipated.

9:30 a.m. ET: Stocks open lower

Here’s where markets were trading Tuesday morning: 

  • S&P 500 (^GSPC): -34.54 (-0.77%) to 4,445.17

  • Dow (^DJI): -291.31 (-0.82%) to 35,334.09

  • Nasdaq (^IXIC): -146.63 (-0.99%) to 14,645.76

  • Crude (CL=F): -$0.33 (-0.49%) to $66.96 a barrel

  • Gold (GC=F): +$4.50 (+0.25%) to $1,794.30 per ounce

  • 10-year Treasury (^TNX): +0.5 bps to yield 1.262%

8:30 a.m. ET: Retail sales sank more than expected in July 

U.S. consumer spending pulled back more than anticipated in July as the effects of stimulus checks waned further and concerns over the Delta variant rose. 

Retail sales dropped by 1.1% in July compared to June, according to the Commerce Department’s monthly report on Tuesday. This followed a 0.7% monthly rise in June. Consensus economists were looking for a 0.3% dip for July. 

Excluding auto and gas sales, retail sales were down 0.7%, which was still a bigger drop than the 0.1% dip expected. 

By category, a number of areas that had seen strong sales trends in recent months showed a sharp moderation. Motor vehicle and parts dealer sales were down 3.9% on the month, but still held higher by nearly 16% compared to July 2020. Both building material and supplies dealers, as well as home furnishing stores posted monthly declines in July, consistent with the slowdown in housing market activity as the year progressed. 

Non-store retailers, or e-commerce platforms, posted a 3.1% drop in monthly sales. Heading into Tuesday’s report, many economists had expected to see a decrease in this category, given that Amazon Prime Day occurred a month early in June this year. 

7:32 a.m. ET Tuesday: Stock futures fall after mixed retail earnings

Here’s where markets were trading Tuesday morning:

  • S&P 500 futures (ES=F): -18.25 points (-0.41%) at 4,455.75

  • Dow futures (YM=F): -144 points (-0.41%) to 35,390.00

  • Nasdaq futures (NQ=F): -53.25 points (-0.35%) to 15,080.75

  • Crude (CL=F): -$0.33 (-0.49%) to $66.96 a barrel

  • Gold (GC=F): +$4.50 (+0.25%) to $1,794.30 per ounce

  • 10-year Treasury (^TNX): -3 bps to yield 1.227%

6:15 p.m. ET Monday: Stock futures edge lower

Here’s where markets were trading Monday evening: 

  • S&P 500 futures (ES=F): -13.00 points (-0.29%) at 4,449.50

  • Dow futures (YM=F):-103.00 points (-0.29%) to 35,317.00

  • Nasdaq futures (NQ=F): -44.00 points (-0.29%) to 15,081.75

NEW YORK, NEW YORK - AUGUST 10: People walk by the Fearless Girl statue outside of the New York Stock Exchange (NYSE) on August 10, 2021 in New York City. Markets were up in morning trading as investors look to a rare bipartisan effort in the Senate to pass a massive infrastructure bill that, if passed, will infuse billions into the American economy. (Photo by Spencer Platt/Getty Images)

NEW YORK, NEW YORK – AUGUST 10: People walk by the Fearless Girl statue outside of the New York Stock Exchange (NYSE) on August 10, 2021 in New York City. Markets were up in morning trading as investors look to a rare bipartisan effort in the Senate to pass a massive infrastructure bill that, if passed, will infuse billions into the American economy. (Photo by Spencer Platt/Getty Images)

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

Read more from Emily:

Read the latest financial and business news from Yahoo Finance

Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, YouTube, and reddit