Negative Reaction To Retail Earnings May Weigh On Wall Street

The major U.S. index futures are currently pointing to a notably lower open on Tuesday, with stocks likely to come under pressure as trading resumes following the long Presidents Day weekend.

A negative reaction to quarterly results from retail giants Walmart (WMT) and Home Depot (HD) is likely to weigh on Wall Street.

Shares of Walmart are slumping in pre-market trading after the company reported better than expected fourth quarter results but provided disappointing guidance for the current year.

Home improvement retailer Home Depot is also seeing significant pre-market weakness after reporting fourth quarter sales that missed analyst estimates and providing a downbeat forecast.

Geopolitical concerns may also generate selling pressure after Russian President Vladimir Putin said he is suspending Russia’s participation in a nuclear arms treaty with the U.S.

The announcement by Putin comes after U.S. President Joe Biden made a surprise visit to Ukraine’s capital Kyiv on Monday.

Meanwhile, traders are also looking ahead to Wednesday’s release of the minutes of the latest Federal Reserve meeting, which could shed additional light on the outlook for interest rates.

Recent economic data has led to worries the Fed may raise rates higher than currently anticipated and keep rates at an elevated level for an extended period.

Stocks initially extended Thursday’s sell-off but regained some ground over the course of the trading session on Friday. The major averages climbed well off their worst levels of the day, with the Dow reaching positive territory.

The major averages eventually ended the session mixed. The tech-heavy Nasdaq slid 68.56 points or 0.6 percent to 11,787.27 and the S&P 500 fell 11.32 points or 0.3 percent to 4,079.09, but the narrower Dow rose 129.84 points or 0.4 percent to 33,826.69.

The major averages also turned in a mixed performance for the week. While the Nasdaq climbed by 0.6 percent, the Dow edged down by 0.1 percent and the S&P 500 dipped by 0.3 percent.

The early weakness on Wall Street reflected ongoing concerns about the outlook for interest rates following the week’s batch of economic data.

Reports on consumer and producer price inflation and retail sales have led to worries the Federal Reserve could raise rates higher than currently anticipated.

Recent comments from Fed officials have added to the concerns, with some suggesting the central bank could raise rates by another 50 basis points next month.

Selling pressure has waned over the course of the session, however, with a report showing a continued decrease in U.S. import prices potentially helping to offset the negative sentiment.

The Labor Department said import prices dipped by 0.2 percent in January after edging down by a revised 0.1 percent in December. The modest decrease matched economist estimates.

With import prices declining for the seventh straight month, the annual rate of growth slowed to 0.8 percent in January from 3.0 percent in December.

The year-over-year growth was much slower than the 2.9 percent expected by economists and reflects the slowest annual growth since December 2020.

“Import prices provided some encouraging news on the inflation front after stronger than expected CPI and PPI reports earlier this week,” said Matthew Martin, US Economist at Oxford Economics.

He added, “The news, however encouraging, will likely factor little into the Fed’s decision to raise rates at the March meeting, and potentially the May meeting as well, as it continues to wrangle with stubborn inflation.”

The recovery attempt also came as treasury yields showed a notable turnaround, with the benchmark ten-year yield pulling back off its highest levels in well over a month.

Despite the recovery attempt by the broader markets, energy stocks remained sharply lower on the day, with a steep drop by the price of crude oil weighing on the sector.

Reflecting the weakness in the sector, the Philadelphia Oil Service Index dove by 4.8 percent and the NYSE Arca Oil Index plunged by 3.9 percent.

A sharp decline by the price of natural gas also contributed to significant weakness among natural gas stocks, dragging the NYSE Arca Natural Gas Index down by 2.2 percent.

Semiconductor, software and housing stocks also saw considerable weakness, while telecom stocks moved sharply higher on the day.

Commodity, Currency Markets

Crude oil futures are climbing $0.57 to $76.91 a barrel after plunging $2.15 to $76.34 a barrel last Friday. Meanwhile, after edging down $1.60 to $1,850.20 an ounce in the previous session, gold futures are slipping $6.60 to $1,843.60 an ounce.

On the currency front, the U.S. dollar is trading at 134.81 yen compared to the 134.25 yen it fetched on Monday. Against the euro, the dollar is valued at $1.0664 compared to yesterday’s $1.0686.

Asia

Asian stocks fell broadly on Tuesday as geopolitical tensions intensified and investors awaited the Federal Reserve minutes from the latest monetary policy meeting for directional cues.

Geopolitical tensions remained in focus after U.S. President Joe Biden made a surprise visit to Ukraine’s capital Kyiv and China’s top diplomat Wang Yi called for a negotiated settlement to the Ukraine war.

The dollar hovered near six-week highs, denting bullion’s appeal. Oil prices were down in Asian trading on fears that an economic slowdown would reduce fuel demand.

Chinese shares bucked the weak trend to end higher on optimism surrounding an economic rebound following years of COVID-19 curbs.

The benchmark Shanghai Composite Index rose 0.5 percent to 3,306.52, a day after the country formalized rules for overseas IPOs.

Hong Kong’s Hang Seng Index tumbled 1.7 percent to 20,529.49 ahead of the index review this week.

Japanese shares ended lower as a business survey showed manufacturing activity in the country contracted at the fastest pace in 30 months in February.

Traders also waited to hear from the government’s nominee for Bank of Japan Governor, who will testify before the lower house on Friday.

The Nikkei 225 Index slipped 0.2 percent to 27,473.10, while the broader Topix closed 0.1 percent lower at 1,997.46.

Retailers led losses, with J. Front Retailing and Takashimaya falling 2.9 percent and 2.6 percent, respectively. Among the top gainers, Yokohama Rubber and Nippon Paper Industries both surged around 5 percent.

Seoul stocks recovered from an early slide to finish slightly higher. The Kospi inched up 0.2 percent to 2,458.96, with LG Chem gaining 3 percent.

Australian markets ended on a subdued note as data showed business activity in the country shrank again in February. BHP’s disappointing half-year results and hawkish RBA minutes also dented investor sentiment.

The benchmark S&P/ASX 200 Index eased 0.2 percent to settle at 7,336.30, while the broader All Ordinaries Index closed 0.1 percent lower at 7,544.60.

Europe

European stocks have declined on Tuesday along with U.S. equity futures amid concerns about U.S. interest rates staying higher for longer.

The dollar retained its strength as investors awaited minutes of the Fed’s latest policy meeting due to be released on Wednesday for additional cues on the rate outlook.

Geopolitical tensions also remained on investors’ radar following U.S. President Joe Biden’s trip to Kyiv and Russian President Vladimir Putin’s speech on the Ukraine war.

In economic news, investors ignored survey results from S&P Global showing that the flash PMI for the euro zone reached a nine-month high of 52.3 in February.

While the French CAC 40 Index is down by 0.3 percent, the U.K.’s FTSE 100 Index and the German DAX Index are both down by 0.4 percent.

InterContinental Hotels has fallen in London despite reporting an uptick in 2022 profits and announcing a share buyback.

Self-storage group Safestore has also moved to the downside after reporting slower trading in its first quarter.

Mining giant Antofagasta has also slumped after posting lower full-year profits and revenue, while lender HSBC has declined despite posting better-than-expected fourth-quarter results.

On the other hand, medical technology firm Smith+Nephew has moved sharply higher despite reporting a drop in annual profit.

French energy company Engie SA has also soared after reporting a jump in 2022 earnings and lifting its dividend payout by 65 percent, thanks to higher natural gas and power prices in the wake of supply disruptions and Western sanctions on Russian gas.

U.S. Economic Reports

The National Association of Realtors is due to release its report on existing home sales in the month of January at 10 am ET. Existing home sales are expected to inch up by 0.1 percent in January after slumping by 1.5 percent in December.

At 1 pm ET, the Treasury Department is scheduled to announce the results of this month’s auction of $42 billion worth of two-year notes.

Stocks In Focus

Shares of Vir Biotechnology (VIR) are moving sharply higher in pre-market trading after Goldman Sachs upgraded its rating on the biotechnology company’s stock to Buy from Neutral.

Medical device company Medtronic (MDT) may also move to the upside after reporting fiscal third quarter results that beat analyst estimates on both the top and bottom lines.

Meanwhile, shares of AutoNation (AN) are likely to see initial weakness after JPMorgan downgraded its rating on the car dealer to Underweight from Neutral.