US equities finished lower on Tuesday as investors turned to large retailer results to gain insight into consumer resilience despite concerns about the likelihood of a “soft landing.”
The tech-heavy Nasdaq Composite (^IXIC) led the falls, falling over 1%. The S&P 500 (^GSPC) and Dow Jones Industrial Average (^DJI) both declined 0.6% and 0.2%, respectively, following a volatile week.
Earnings are top of mind as markets reopen following the Presidents’ Day holiday, with quarterly reports from large US retailers Walmart (WMT) and Home Depot (HD) painting a mixed picture. Shares of Home Depot sank as it said demand has failed to pick up despite “sticky” inflation, while Walmart soared on its positive sales outlook and dividend rise.
On Tuesday, US markets closed down overall.
The tech-heavy Nasdaq Composite (^IXIC) led the falls, falling over 1%. The S&P 500 (^GSPC) declined 0.6%, while the Dow Jones Industrial Average (^DJI) dipped 0.2%.
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A depressed housing market has dragged on the home improvement industry over the last year, and indications of a recovery may remain elusive in 2024, according to the country’s largest home improvement shop.
“I’d say we have a neutral outlook on housing for 2024,” Home Depot (HD) CEO Edward Decker said on the company’s fourth-quarter earnings call this morning. “We don’t think there’s incremental pressure nor do we think that we’re quite ready for a hockey stick recovery.”
The company reported Tuesday that its fourth-quarter sales fell 3% to $34.8 billion from the previous year’s period. It forecasts 1% revenue increase in fiscal year 2024.
“The U.S. home market is virtually paralysed. There isn’t much occurring right now. Lower rates will help break through that inertia and act as a stronger driver of higher sales for Home Depot,” Oppenheimer managing director Brian Nagel told Yahoo Finance Live Tuesday morning.
Existing house sales fell last year due to rising interest rates, limited housing availability, and decreased affordability, causing some slowdown in home renovation investment as turnover in the housing market slowed.
And, with the likelihood of a Federal Reserve rate drop diminishing, Decker anticipates this deceleration in home expenditure to continue throughout the first half of the year.
“[Home Depot CFO Richard McPhail] has been talking for some time [about] the Fed’s stance of higher for longer,” Decker said in a statement. “I think we now we have an appreciation that longer is going to go through the first half of this year.”
These remarks are consistent with recent statements from others in the housing market.
“But the inflation statistics, if they continue to stay stubbornly higher, it throws into question whether or not the Fed is going to cut three times, maybe they just cut two, and then when do they?
When asked why they believe equities would rise higher, Goldman Sachs and UBS both offered a more optimistic outlook for corporate earnings this year than previously projected. According to Goldman, an improved earnings and profit forecast for the “Magnificent Seven” tech firms is expected to fuel the majority of the increases.
Meanwhile, UBS notes that recent reports on stickier-than-expected inflation may not be as bad for markets as first thought.
“Earnings benefit from higher inflation,” Golub said in a letter to customers on Tuesday.
He said, “Returns and profits are measured in nominal dollars. In other words, rising inflation tends to boost stock values. While the market fell following more robust [Consumer Price Index] and [Producer Price Index] reports this week, our research suggests that these demand-driven readings are positive for future returns.”