Investors will closely watch an announcement from the Federal Reserve on Wednesday.
Stefani Reynolds/BloombergU.S. stocks fell Tuesday, as investors digested the latest economic news and prepared for a key announcement on rates and fiscal policy from the Federal Reserve on Wednesday.
Government figures released Tuesday showed that U.S. retail sales fell 1.3% in May, compared with the decline of 0.6% economists expected. The producer-price index, an inflation indicator, rose 0.7%, excluding food and energy, while economists had expected an increase of 0.5%.
The Dow Jones Industrial Average fell 94 points, or 0.27%, while the S&P 500 slipped 0.2%, and the Nasdaq Composite fell 0.71%
In Asia, Tokyo’s Nikkei 225 rose 1%, while Hong Kong’s Hang Seng slipped 0.7%. The Shanghai Composite was 0.9% lower. The FTSE 100 in London rose 0.4%, opening at the highest level since February 2020, as the pan-European Stoxx 600 was 0.1% higher and trading at fresh records. The CAC 40 in Paris lifted 0.4% and Frankfurt’s DAX climbed 0.4%.
The retail sales result may not have been quite as disappointing as the headline number would imply. Excluding a large decline in auto sales month-over-month—due to a semiconductor shortage—retail sales declined just 0.7%, according to Morgan Stanley data.
Still, stocks were challenged partly because investors are awaiting the key Fed release on Wednesday. “We’re all on pins and needles to see if the Fed is tapering,” says Louis Navellier, founder of asset-management firm Navellier & Associates.
The Fed could signal that it is close to reducing the size of its bond purchasing program. That would lower bond prices and lift their yields, a negative for stock valuations.
Technology stocks were taking the hardest hit, which could reflect that investors are concerned about higher bond yields. If the Fed reduces the size of its bond buying program too quickly, bond prices would fall and their yields could rise fairly fast as well.
Additionally, there is some concern that the Fed will lift the short-term lending rate sooner than currently expected, with inflation running fairly hot.
“Concerns [that] FOMC language will take a hawkish turn seem to be impacting market internals,” writes Dennis DeBusschere, head of portfolio strategy research at Evercore.
The valuations of technology companies are highly sensitive to changes in long-dated bond yields because there cash flows are expected to grow for a long time from the present.
Lukman Otunuga, an analyst at FXTM, notes that “although the Fed is widely expected to leave interest rates and policy measures unchanged, all eyes will be on the statement language, updated economic projections and Chair Jerome Powell’s postmeeting press conference.”
“The Fed has managed to persuade markets that the current jump in inflation is transitory. The question is: for how long will they keep this mantra?”
Airbus stock fell 0.4% in London trading, while shares in Boeing (BA) rose 1%, after the settlement of a 17-year trade dispute between the European Union and U.S. over state aid to the aircraft manufacturers. Both companies, rivals, are jewels in the manufacturing crowns of the U.S. and Europe, and the long-running trade spat includes a cumulative $11.5 billion in tariffs on exports.
H&M stock fell 2.3% in London, after blowout second-quarter sales at the fashion retail giant fell short of expectations. Sales in local currencies jumped 75% from March to the end of May compared with the same period in the year prior, to 46.51 billion Swedish kroner, which fell short of analysts’ expectations of SEK 48.09 billion.
Shares in EDF, the French multinational energy group, fell as much as 2% before settling 1.2% lower, after reports that one of its nuclear power plants in China could be experiencing a leak. EDF, which jointly owns the plant with the China General Nuclear Power Group, said on Monday that it was dealing with “performance” issues at the facility but that operations remained within safety guidelines.
Olin Corp. (OLN) stock gained 1.69% after getting upgraded to Buy from Neutral at UBS.
Spirit Airlines (SAVE) stock initially rose, before falling 0.03% after getting upgraded to Buy from Neutral at Citigroup.
Welltower (WELL) stock gained 0.11% after getting upgraded to Strong Buy from Market Perform at Raymond James.
Fastenal (FAST) stock dropped 2.22% after getting downgraded to Underweight from Equal Weight at Morgan Stanley.
Principal Financial Group (PFG) stock fell 0.48% after getting downgraded to Neutral from Overweight at Piper Sandler.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
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June 16, 2021 at 03:40AM
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