Dow Jones Retailers Sink Stock Market; S&P 500 Breaks Support
Stock market indexes tested February lows in Tuesday’s session after profit warnings from Dow Jones retailers Walmart (WMT) and Home Depot (HD). Superpower machismo on Ukraine and Taiwan unnerved investors over the weekend. Meme stock and IBD 50 component DraftKings (DKNG) neared a breakout above the 2022 high.
Home Depot — a big component of the Dow Jones and S&P 500 — traded lower by more than 7% after sharply lowering fiscal-year 2024 earnings estimates. It also expects “flat sales,” fueling recession fears as we move toward the second half of the year.
Walmart beat Q4 top and bottom lines but issued downside guidance for the current quarter and the fiscal year ending next January. It slashed annual earnings previously estimated at $6.51 per share, all the way down to $5.90-$6.05, citing “pressure on the consumer.”
WMT stock shook off early losses and closed 0.6% higher, quite an achievement after weak 2023 guidance.
Old-timers scratched their heads because the retail giant performed well in the 2008 crash. At that time, economic pressures forced consumers to downsize from mall anchors to Walmart’s legendary deep discounts and the retailer enjoyed a sales bump.
The S&P 500 undercut the 21-day exponential moving average Friday but closed above that key level. Today, it’s back below the line. The Dow Jones Industrial Average broke the moving average Thursday. Tuesday’s renewed pressure signals potential breakdowns on both indexes, raising odds for downside acceleration.
The Nasdaq composite and the Russell 2000 also broke their 21-day lines early Tuesday.
Also in the Dow Jones, Apple (AAPL) supply-chain issues appear to be easing.
UBS analyst David Yogt declared “the worst of the supply-chain disruption is behind the industry,” noting that iPhone shipments increased “88% month-over-month and +20% YoY (year over year) in December vs a 58%/57% MoM/YoY decline in November.”
AAPL stock closed 2.7% lower.
Stock Market Bears In Charge
On the economic front, February’s IHS Markit Manufacturing index hit 47.8, higher than January’s 46.9. The services reading also exceeds January’s metrics, 50.5 vs. 46.8. The 50+ signals expansion, which won’t make central bankers happy.
U.S. Stock Market Today Overview
Last Update: 12:10 PM ET 2/21/2023
Meanwhile, January existing-home sales fell to 4 million vs. the 4.12 million consensus. Mortgage rates surged Tuesday morning and may exceed the November peak above 6.9%, undermining demand.
The Dow Jones Industrial Average and S&P 500 traded lower by more than 2%. The Nasdaq lagged, dropping 2.5%, while the Russell 2000 small-cap index got hit hard, losing 3.0%.
NYSE and Nasdaq volume matched Friday levels. Crude oil erased early gains, falling a few clicks to $76.30 per barrel. Asian markets were mixed, while European bourses posted modest losses.
The 10-year Treasury note yield jumped nearly 3% to a three-month high at 3.91% and is challenging the psychological 4% level once again. The 30-year bond fell to a seven-week low. Odds for a 0.25% rate hike at the March meeting stand at 76%, according to CME FedWatch.
S&P Volatility Index surged nearly 9% to a seven-week high at 23.05. In the crypto world, Bitcoin reversed at resistance above $25,000.
Superpowers Slam Stock Market
Superpowers U.S., Russia and China unnerved investors worldwide over the holiday weekend, ratcheting up geopolitical tensions over Ukraine and Taiwan. It started with President Joe Biden making a surprise visit to Kyiv just ahead of Vladimir Putin’s version of a Russian State of the Union speech.
It’s just two days until the Ukraine war’s first anniversary and Biden’s visit was strategically planned, just as Chinese bigwigs meet Russian counterparts and while Putin delivered an angry speech, abandoning the 20th century’s most important nuclear agreement.
Newswires also reported that Beijing is growing worried about a severely weakened Russia, raising fears that Xi will supply Russia with needed ammunition and more sophisticated weaponry.
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IBD 50: Meme Stock DraftKings Makes The Cut
Sport-gambling portal and meme stock DraftKings (DKNG) and cloud-computing provider Procore Technologies (PCOR) have never reported quarterly profits since coming public. But both have joined the elite IBD 50 list and are approaching buy points in nearly identical six-month cup bases. DKNG traded 2.8% lower while PCOR shed 0.7% into Tuesday’s close.
Both stocks blasted toward buy zones in heavy volume Friday after beating Q4 2022 estimates and raising fiscal-year 2023 guidance. Even so, DKNG is expected to lose $1.14 per share in 2023, while Procore is forecast to lose 24 cents.
However, great things can start from humble beginnings, and IBD 50’s proprietary algorithms have picked up strong buying interest and growing sales on both issues.
Procore mutual fund buying has risen in each of the last three quarters, from 230 in Q1 of 2022 to 364 in Q4. In addition, the stock has posted double-digit sales growth in each of the last seven quarters.
On the flip side, funds remain skeptical about DraftKings, with nearly 300 jumping ship in 2022. However, last week’s strong earnings and buying volume will force many institutions to take a second look at this pandemic-era meme play.
Follow Alan Farley on Twitter at @msttrader.
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