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Home Depot falls as FY profit forecast disappoints
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Big tech stocks hit in widespread decline
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U.S. business activity expands for first time in 8 months
(Updates to close, adds analyst commentary)
By David French
Feb 21 (Reuters) -
The S&P 500 and Nasdaq ended down for the third straight session as Wall Street slumped on Tuesday, with investors interpreting a rebound in U.S. business activity in February to mean interest rates will need to stay higher for longer to control inflation.
The S&P Global Purchasing Manufacturer's index, which
reflects business activity in the United States, returned to
expansion for the first time in eight months in February. The
50.2 reading, up from 46.8 in January, was buoyed by a robust
services sector, according to a survey.
The report adds to a recent slew of economic data which has
painted a picture of a resilient economy, which continues to
perform against a backdrop of multiple rate-rises by the central
bank in 2022 aimed at tamping down inflation.
With inflation still far from the Fed's 2% target, and the
economy retaining much of its vigor, money market participants
have been revising upwards where they see the Fed fund rates
peaking - currently at 5.35% in July and staying near those
levels throughout the year.
"Today, the realization is that the Fed is not kidding
around about higher for longer, and in fact it might a little
bit higher for a little-to-a-lot bit longer," said Carol
Schleif, chief investment officer at BMO Family Office.
U.S. stocks had an upbeat start to the year after their
worst annual showing in more than a decade in 2022, as investors
hoped the central bank's rate-hike cycle was nearing its end.
With this positive mindset driving indexes higher, it makes
equity markets susceptible to pull-backs when data undermines
expectations on what the Fed might do.
"The market keeps looking for a dovish pivot, and they are
just not going to get it," said Schleif.
Investors will be looking to the minutes detailing
discussion at the Fed's last policy meeting, due out on
Wednesday, for further clues on attitudes within the central
bank on rates.
According to preliminary data, the S&P 500 lost 81.85 points, or 2.01%, to end at 3,997.39 points, while the Nasdaq Composite lost 294.72 points, or 2.50%, to 11,492.55. The Dow Jones Industrial Average fell 693.35 points, or 2.06%, to 33,133.34. Among those hit by Tuesday's widespread declines were big tech stocks, with Tesla Inc , Amazon.com Inc , Microsoft Corp and Google-parent Alphabet Inc all falling. Not helping them was the fact the U.S. benchmark 10-year Treasury notes hit a fresh three-month high. Higher yields typically weigh on growth stocks, whose valuations tend to be based on future profits that are discounted heavily as rates go higher. Meta Platforms Inc ended lower. The Facebook parent had initially been buoyed by confirmation it was testing a monthly subscription service called Meta Verified, which will let users verify their accounts using a government ID and get a blue badge.
Elsewhere, Home Depot Inc slumped to a three-month low after the No. 1 domestic home improvement chain warned of weakening demand and issued a dour profit forecast for 2023. Smaller rival Lowe's Cos Inc fell ahead of its results next week. Walmart forecast full-year earnings below estimates and painted a grim picture of hotter-than-expected food inflation squeezing profit margins. However, the world's largest retailer recovered from an initial decline to advance. Analysts are expecting earnings of S&P 500 companies to grow by 1.6% in 2023, compared with 4.4% growth estimated at the start of the year, as per Refinitiv data.
All of the major 11 S&P 500 sectors fell, with the consumer
discretionary index's decline leading the way.
(Reporting by Johann M Cherian and Medha Singh in Bengaluru and
David French in New York; Editing by Marguerita Choy and Anil
D'Silva)
