- Consumer discretionary shares head for worst drop in 3 months
- Earnings results sap momentum after commodities-led rally
U.S. stocks fell for the first time in four days as disappointing results from Macy’s Inc. to Walt Disney Co. heightened concern that American consumers remain hesitant to boost spending.
The misses from Disney and Macy’s sent consumer discretionary shares tumbling toward the biggest drop in three months as investors await Friday’s government report on retail sales. Fossil Group Inc. also reported weak results, while earnings from J.C. Penney Co. and Nordstrom Inc. are on tap this week. Energy producers advanced after erasing losses with the price of crude following an inventory report.
The S&P 500 fell 0.4 percent to 2,077.17 at 11:26 a.m. in New York, after rising to a two-week high yesterday. The Dow Jones Industrial Average sank 98.62 points, or 0.6 percent, to 17,829.73, with Disney contributing roughly a third of the losses. The Nasdaq Composite Index decreased 0.3 percent.
“Given that equities are about 3 percent away from all-time highs in absence of earnings growth, equities are priced to perfection within a thin margin of error,” said Terry Sandven, who helps oversee $126 billion as chief equity strategist at U.S. Bank Wealth Management in Minneapolis. “Yesterday’s rally was somewhat unexpected and not the trend that we’re likely to see over the next few weeks. By any measure, equities are due for a pullback and will trend sideways over the next year.”
After a climb Tuesday sparked by a rebound in commodities prices, results from Disney and Macy’s reminded investors that further equity gains remain vulnerable to stumbling corporate profits. Other media, apparel and retail companies were the hardest hit in Wednesday’s early trading. Behind Disney, Wal-Mart Stores Inc. and Nike Inc. fell the most in the Dow, losing more than 3.2 percent. Kohl’s Corp. slid 5.8 percent, the steepest in three months.
Stocks had advanced for three consecutive days for the first time since the S&P 500 reached a four-month high on April 20, with investors betting the Federal Reserve will be all the more deliberate in tightening monetary policy after fewer-than-forecast jobs were added last month. Traders are now pricing in only a 4 percent chance of higher interest rates in June, compared with 22 percent just two weeks ago. The first month with even odds of an increase has been pushed back to February 2017.
The main U.S. equity benchmark jumped as much as 15 percent from its February low to come last month within 1.4 percent of the record set a year ago, as investors assessed how recovering oil prices and a drop in the dollar will help limit a contraction in corporate earnings. The index has since struggled to extend gains amid lukewarm economic data and lackluster results from giants such as Apple Inc. and Microsoft Corp.
Analysts have moderated their predictions for a decline in first-quarter profits for S&P 500 members to 7.4 percent, from 10 percent last month. So far, about 75 percent of the firms that have released results beat earnings estimates, and 54 percent exceeded sales projections.
“The earnings season wasn’t bad if you strip off energy and financials, but you can’t just remove everything you don’t like,” said Ben Kumar, who helps manage about $14 billion at London-based Seven Investment Management. “You have some moments of optimism followed by risk-off days and there’s just no real momentum. Oil is steering sentiment again because there’s not much else.”
In Wednesday’s trading, seven of the S&P 500’s 10 main industries retreated, with consumer discretionary companies losing 1.7 percent, the most since Feb. 24. Phone companies were little changed and energy producers edged higher as crude rallied after after a government report showed that U.S. crude inventories unexpectedly declined.
The CBOE Volatility Index rose 0.4 percent to 13.69, the first climb in five days. The measure of market turbulence known as the VIX is down about 13 percent this month after rising 13 percent in April.