Stocks Decline on Weakness in Retailers and Chip Stocks

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.53%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.07%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.32%. 

A slump in retailer stocks today is weighing on the overall market, with Target plunging -14% after reporting weaker-than-expected Q3 adjusted EPS and forecasting a decline in Q4 comparable same-store sales.  Also, Advanced Auto Parts is down more than -15% after reporting disappointing Q3 earnings results.

Meanwhile, losses in semiconductor stocks today are weighing on technology stocks after Micron Technology warned that its market outlook for 2023 has weakened.  Today’s U.S. economic news was mixed for stocks.

A rally in food packaging stocks is limiting losses in the overall market on signs the companies are able to pass along their inflated input costs to consumers, boosting their sales and earnings.  In addition, a decline in T-note yields this morning is also supportive for stocks as the 10-year T-note yield is down -3.2 bp at 3.738%.

Stock indexes initially rose in overnight trading on reduced geopolitical risks after NATO said it saw no indication that a missile that struck Poland was an intentional attack.  NATO said the missile was likely fired by Ukrainian air defenses to defend Ukrainian territory against Russian cruise missile attacks.

U.S. Oct retail sales rose +1.3% m/m, stronger than expectations of +1.0% m/m and the biggest increase in 8 months.  Also, Oct retail sales ex-autos rose +1.3% m/m, stronger than expectations of +0.5% m/m.

The U.S. Oct import price ex-petroleum index fell -0.2% m/m, the sixth consecutive month prices have fallen but a smaller decline than expectations of -0.8% m/m.

U.S. Oct manufacturing production rose +0.1% m/m, weaker than expectations of +0.2% m/m. Also, Sep manufacturing production was revised lower to +0.2% m/m from the initially reported +0.4% m/m.

The U.S. Nov NAHB housing market index fell -5 to a 2-1/2 year low of 33, weaker than expectations of 36.

Comments today from New York Fed President Williams were hawkish for Fed policy and bearish for stocks when he said the Fed's focus on fighting inflation is "of paramount importance" and "using monetary policy to mitigate financial stability vulnerabilities can lead to unfavorable outcomes for the economy."

Today’s stock movers…

Advanced Auto Parts (AAP) is down more than -15% today to lead losers in the S&P 500 after reporting Q3 adjusted EPS of $2.84, well below the consensus of $3.35.  The company also cut its full-year adjusted EPS forecast to $12.60-$12.80 from a prior estimate of $12.75-$13.25, weaker than the consensus of $13.01. 

Retailer stocks are slumping today after Target reported Q3 adjusted EPS of $1.54, well below the consensus of $2.15, and forecasted a decline to the low single digits for Q4 comparative same-store sales. Target (TGT) is down more than -14%.  Also, Best Buy (BBY) is down more than -7%. In addition, Macy’s (M) is down more than -5%, and Ross Stores (ROST) is down more than -2%. Finally, Dollar Tree (DLTR) is down more than -1%.

Cruise line operators are falling today after Carnival announced a private offering of $1 billion of 5.75% convertible senior notes due December 1. 2027.  As a result, Carnival (CCL) is down more than -13%. Also, Norwegian Cruise Line Holdings (NCLH) is down more than -6%, and Royal Caribbean Cruises Ltd (RCL) is down more than -2%. 

Semiconductor stocks are under pressure today after Micron Technology warned that its market outlook for 2023 has weakened.  Lam Research (LRCX) is down more than -6%, and Micron Technology (MU) is down more than -5%.  Also, Advanced Micro Devices (AMD), Applied Materials (AMAT), and Marvell Technology (MRVL) are down more than -4%.  In addition, Qualcomm (QCOM), Nvidia (NVDA), KLA Corp (KLA), NXP Semiconductors NV (NXPI), and Microchip Technology (MCHP) are down more than -3%.

Lowe’s (LOW) is up more than +4% today to lead gainers in the S&P 500 after reporting Q3 adjusted EPS of $3.27, stronger than the consensus of $3.09, and raising its full-year adjusted EPS estimate to $13.65-$13.80 from a previous estimate of $13.10-$13.60.

Discover Financial Services (DFS) is up more than +4% after it said the investigation into its student-loan servicing practices had been completed, and it will resume stock buybacks.

Packaged food stocks are moving higher today on signs that food companies are able to pass along their inflated input costs to consumers, boosting their sales and earnings.  Hershey Co (HSY) is up more than +3%.  Also, General Mills (GIS), JM Smucker (SJM), and Campbell Soup (CPB) are up more than +2%.  In addition, Kraft Heinz (KHC) is up more than +2% to lead gainers in the Nasdaq 100.  Finally, Kellogg (K), Conagra Brands (CAG), and Hormel Foods (HRL) are up more than +1%.   

Across the markets…

Dec 10-year T-notes (ZNZ22) this morning are up by +12 ticks, and the 10-year T-note yield is down -3.2 bp at 3.738%.  Dec T-notes climbed to a 6-week high today, and the 10-year T-note yield fell to a 6-week low of 3.707%.   T-notes have carry-over support today from a rally in 10-year UK gilts to a 1-3/4 month high.  An easing of inflation concerns also giving T-notes a boost after today’s news that the U.S. Oct import price index ex-petroleum fell -0.2% m/m, the sixth consecutive month prices have fallen.  Also, inflation expectations are falling after the 10-year breakeven inflation rate dropped to a 1-month low today at 2.332%.

The dollar index (DXY00) this morning is down by -0.18%.  A decline in T-note yields today has undercut the dollar. Also, the dollar is under pressure on reduced safe-haven demand after NATO said the Russian missile that fell on Poland was not an intentional attack.  Losses in the dollar are limited as a fall in stocks today has sparked some liquidity demand for the dollar.

EUR/USD (^EURUSD) today is up by +0.38% but remains modestly below Tuesday’s 4-1/4 month high.  Dollar weakness today is supportive of the euro along with an easing of geopolitical risks after NATO said the Russian missile that landed in Poland was likely fired by Ukrainian air defense forces.  EUR/USD also found support today on hawkish comments from ECB Governing Council member Muller who said the ECB should deliver another "substantial" increase in interest rates at next month's meeting.  

The ECB’s Financial Stability Review was bearish for EUR/USD as it said record inflation is hurting consumers' ability to service debts, while Europe's worsening growth prospects threaten corporate profits.

ECB Governing Council member Muller said October's Eurozone record inflation reading showed continued price increases and the ECB should deliver another "substantial" increase in interest rates at next month's meeting.

USD/JPY (^USDJPY) today is up by +0.11%.  The yen is slightly lower today on bearish Japanese economic news on Sep core machine orders and the Sep tertiary industry index. Losses in the yen are limited after the 10-year T-note yield dropped to a 6-week low.

Japan Sep core machine orders unexpectedly fell -4.6% m/m, weaker than expectations of +0.7% m/m.

The Japan Sep tertiary industry index unexpectedly fell -0.4% m/m, weaker than expectations of +0.6% m/m.

December gold (GCZ2) this morning is up +2.0 (+0.11%), and December silver (SIZ22) is up +0.132 (+0.61%).  Precious metals prices this morning are slightly higher.  A weaker dollar today is supporting gains in metals prices.  Gold is also finding support from lower global government bond yields.  Reduced safe-haven demand for precious metals is limiting gains as geopolitical risks in Europe eased after NATO said a Russian missile that landed in Poland was not an intentional act.  Gold continues to be undercut by fund liquidation as long positions in gold ETF’s dropped to a new 2-1/2 year low Tuesday.

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