Stocks Fall as Target’s Plunge Hammers Retailer Stocks

What you need to know…

The S&P 500 Index ($SPX) (SPY) this morning is down by -1.61%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -1.38%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.76%. 

U.S. stocks this morning are moderately lower.  A sell-off in retailer stocks is weighing on the overall market today, led by a -24% plunge in Target after the retailer cut its yearly profit forecast due to a surge in costs.   Stock indexes maintained moderate losses this morning on weak U.S. housing starts data and hawkish comments from Chicago Fed President Evans.

Stocks have carry-over pressure from Tuesday’s comments from Fed Chair Powell, who said the Fed “won’t hesitate” to tighten policy beyond neutral to curb inflation and that it will continue to raise interest rates until there is “clear and convincing” evidence that inflation is in retreat. 

U.S. Apr housing starts fell -0.2% m/m to 1.724 million, weaker than expectations of 1.756 million.  Apr building permits, a proxy for future construction, fell -3.2% m/m to a 5-month low of 1.819 million, still above expectations of 1.814 million.

Comments today from Chicago Fed President Evans weighed on stocks when he said he sees a half-point interest rate increase when the FOMC meets next month and "probably thereafter."  He also said that he expects the economy to cool as Fed policy gets restrictive.

Today’s stock movers…

Retailer stocks are being hammered today and are dragging the overall market lower.  Target (TGT) is down more than -24% today to lead losers in the S&P 500 after reporting Q1 adjusted EPS of $2.19, well below the consensus of $3.06, and cutting its full-year operating margin rate to about 6% from a prior estimate of 8% or higher.

Other retailers also slumped, with Dollar Tree (DLTR) down more than -16% to lead losers in the Nasdaq 100.  Also, Dollar General (DG) is down more than -11%, and Best Buy (BBY) and Costco Wholesale (COST) are down more than -8%.  Ulta Beauty (ULTA) is down more than -6%, and Walgreens Boots Alliance (WBA) is down more than -5% to lead losers in the Dow Jones Industrials.   

Homebuilding stocks are falling today after U.S. Apr housing starts were weaker than expected and U.S. Apr building permits fell to a 5-month low.  Lennar (LEN) is down more than -5%, and PulteGroup (PHM) and DR Horton (DHI) are down more than -4%.

TJX Cos (TJX) erased a loss of more than -6% and is now up more than +9% to lead gainers in the S&P 500 after Telsey Advisory group said that while TJX’s Q1 sales came in lighter than expected, it had a stronger margin performance versus mega-caps Target and Walmart. 

Penn National Gaming (PENN) is up more than +2% today after Jeffries raised its recommendation on the stock to buy from hold. 

Across the markets…

June 10-year T-notes (ZNM22) this morning are up +4 ticks, and the 10-year T-note yield is down -2.2 bp at 2.966%.  Jun 10-year T-note futures rebounded from a 1-week low today, and the 10-year T-note yield fell back from a 1-week high of 3.010% as a slump in stocks boosted the safe-haven demand of T-notes.  A jump in European government bond yields is undercutting T-notes after the 10-year German bund yield climbed to a 1-week high today of 1.093%.  Supply pressures are also weighing on T-notes as the Treasury will auction $17 billion of 20-year T-bonds later today. 

The dollar index (DXY00) this morning is up +0.14%.  The dollar index today recovered from a 1-1/2 week low in overnight trade and is moderately higher.  A slump in stocks this morning has boosted the liquidity demand for the dollar.  The dollar fell back from its best levels today after T-notes yields fell and after U.S. Apr housing starts fell more than expected. 

EUR/USD (^EURUSD) today is down -0.10%.  EUR/USD fell back from a 1-week high and is moderately lower. Economic concerns are weighing on EUR/USD after today’s data showed Eurozone Apr new car registrations fell for the tenth consecutive month.  Losses in the euro were limited by strength in European government bond yields after the 10-year German bund yield today rose to a 1-week high. 

ECB Governing Council member Rehn said there's broad agreement among the ECB Governing Council that policy rates should exit negative territory "relatively quickly." 

Eurozone Apr CPI was revised downward by -0.1 to a record high 7.4% y/y from the originally reported 7.5% y/y.

Eurozone Apr new car registrations fell -20.6% y/y, the tenth consecutive month that registrations have fallen.

USD/JPY (^USDJPY) today is down -0.62%.  The yen is moving higher today on lower T-note yields and on Japanese economic data that showed the Japanese economy contracted less than expected in Q1.  Also, a smaller-than-expected decline in the Japan Q1 deflator was positive for the yen. 

Japan Q1 GDP fell -1.0% (q/q annualized), stronger than expectations of -1.7%.  The Q1 GDP deflator fell -0.4% y/y, stronger than expectations of -1.0% y/y.

June gold (GCM22) this morning is down by -8.0 (-0.44%), and May silver (SIK22) is down by -0.175 (-0.80%).  Precious metals today are moderately lower.  A stronger dollar today is weighing on metals prices.  Also, hawkish central bank comments are weighing on metals after Fe Chair Powell said Tuesday that the Fed would keep raising interest rates until there is “clear and convincing” evidence that inflation is in retreat. Also, ECB Governing Council member Rehn said the ECB should begin raising interest rates “relatively quickly.” Today’s slump in stocks boosted safe-haven demand for gold.