Stocks Settle Mixed on Strength in Big-Box Retailers and Tech Stock Weakness

What you need to know…

The S&P 500 Index ($SPX) (SPY) Tuesday closed up +0.190%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.71%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.23%. 

Stocks on Tuesday settled mixed, with the S&P 500 and Dow Jones Industrials posting 3-3/4 month highs.   A rally in big-box retailers Tuesday was supportive for the overall market after Walmart jumped more than +5% when it reported better-than-expected Q2 EPS and modestly improved its full-year sales forecast.  Also, cruise line operators rallied Tuesday, led by a +4% jump in Carnival after it said cruise line bookings surged after some pandemic restrictions were lifted.

The Nasdaq 100 fell back from a 3-3/4 month high Tuesday and finished moderately lower as a jump in T-note yields undercut technology stocks.  The 10-year T-note yield Tuesday rose +3.2 bp to 2.820%.  Also, concerns about the global economy weighed on the overall market Tuesday after Monday’s economic data from China signaled a slowdown in growth.

U.S. July manufacturing production rose +0.7% m/m, stronger than expectations of +0.3% m/m and the biggest increase in 4 months.  Also, July industrial production rose +0.6% m/m, stronger than expectations of +0.3% m/m.

U.S. housing data Tuesday was mixed.  On the negative side, July housing starts fell -9.6% m/m to a 17-month low of 1.446 million, weaker than expectations of 1.527 million.  Conversely, July building permits, a proxy for future construction, fell -1.3% m/m to 1.674 million, stronger than expectations of 1.640 million.

Today’s stock movers…

Walmart (WMT) closed up more than +5% Tuesday to lead gainers in the Dow Jones Industrials after reporting Q2 adjusted EPS of $1.77, above the consensus of $1.63, and raising its full-year adjusted EPS estimate to down -9% to -11% from a previous estimate of down -11% to -13%.  Other big-box retailers also rallied on the news, with Best Buy (BBY) closing up more than +4% and Target (TGT) closing up by more than +3%.  Also, Ross Stores (ROST) closed up more than +2% to lead gainers in the Nasdaq 100, and Costco Wholesale (COST) closed up more than +1%.

Cruise line operators rallied Tuesday, led by a +4% jump in Carnival (CCL) after the company said its booking activity for August 15 was nearly double the level for the equivalent day in 2019, before the pandemic.  Also, Royal Caribbean Cruises Ltd (RCL) and Norwegian Cruise Line Holdings (NCLH) closed up by more than +3%. 

Home Depot (HD) closed up more than +4% Tuesday after reporting that Q2 comparable sales rose +5.8%, stronger than the consensus of +4.56%.  Also, the company said that Q2 strength has continued into Q3.

Higher T-note yields Tuesday weighed on technology stocks.  Illumina (ILMN), Datadog (DDOG), Fortinet (FTNT), and Marvell Technology (MRVL) closed down by more than -2%. Also, Qualcomm (QCOM), Micron Technology (MU), Applied Materials (AMAT), Okta (OKTA), and Zscaler (ZS) closed down by more than -1%. 

Zoom Video Communications (ZM) closed down more than -3% Tuesday after Citigroup downgraded the stock to sell from neutral, saying it sees “new hurdles to sustaining growth.” 

U.S.-listed Chinese stocks moved lower Tuesday after Tencent Holdings said it plans to sell most of its stake in food delivery company Meituan in an effort to appease Chinese regulators.  Pinduoduo (PDD) closed down by more than -3%. Also, Baidu (BIDU) closed down by more than -2%, and JD.com (JD) and Alibaba Group Holding (BABA) closed down by more than -1%. 

Across the markets…

Sep 10-year T-notes (ZNU22) on Tuesday closed down -10 ticks, and the 10-year T-note yield rose +3.2 bp to 2.820%.  Higher European government bond yields Tuesday weighed on T-note prices.  Also, a rally in the S&P 500 to a 3-3/4 month high Tuesday curbed safe-haven demand for T-notes.  T-notes were also under pressure Tuesday after U.S. economic data on July manufacturing output and July industrial production came in stronger than expected. 

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