The market fell into a correction as Treasury yields surged to a 15-year high and Chinese economic concerns mounted. The major indexes fell below their 50-day lines with more and more leading stocks breaking down. Cisco Systems (CSCO) and TJX Cos. (TJX) were earnings winners. But On Holding (ONON), StoneCo (STNE) and Cava (CAVA) were earnings losers. Walmart (WMT), Target (TGT) and Home Depot (HD) were other notable retail reports. Tesla (TSLA) tumbled amid a spate of new price cuts and discounts.
Market In Correction
The Nasdaq led the way, but the S&P 500 and the Dow also fell below their 50-day lines as Treasury yields spiked. Nvidia (NVDA) fared relatively well, but more and more leaders broke down, with energy a notable exception. The market is now in a correction.
Consumers, Economy Strong
The latest batch of data shows that the U.S. economy has momentum in Q3 as consumer spending appetites perked up with a boost to retail sales from Amazon Prime Day and strong spending at food and drinking places. Meanwhile, minutes from the July 25-26 Fed meeting showed that most policymakers still saw “significant upside risks to inflation.” S&P Global’s GDP tracker currently shows the U.S. economy growing at an accelerated 3.2% rate in Q3, up from 2.4% a week ago. July retail sales grew 0.7% from June, nearly doubling forecasts. Outside of autos, sales rose 1%. Strong July housing starts and the August Philly Fed manufacturing index unexpectedly jumping into positive territory also contributed to the stronger growth backdrop. Single-family homebuilding is benefiting from a dearth of existing-home sales, because would-be sellers want to keep their existing low mortgage rates.
China’s economy continues to struggle, with July retail sales and industrial production rising less than expected vs. a year earlier, along with other weak data. China property giant Evergrande filed for bankruptcy protection in New York. China’s central bank cut rates unexpectedly.
Cisco Growth Accelerating
Cisco Systems (CSCO) reported that Q4 EPS rose 37%, the second straight quarter of acceleration, while revenue climbed 16% to $15.2 billion, the fourth quarter of faster growth. The networking giant gave some mixed guidance for fiscal 2024. But shares advanced as product orders jumped 30% vs. the April quarter.
Tesla Steps Up Price Cuts
The global EV giant announced a variety of price cuts, discounts and incentives this past week, signaling more pressure on profit margins. On Aug. 13, Tesla (TSLA) cut China Model Y prices on high-end variants by $1,930, but not base Model Y, the most popular version in China. The company also offered a fresh insurance subsidy for Model 3 buyers in China worth $1,100, amid swirling rumors that the new upgraded Model 3 will launch in the next few weeks. Tesla also nearly doubled discounts on its luxury Model S and Model X vehicles in China. Tesla launched new, range-limited versions of its Model S and Model X in the U.S. that are $10,000 cheaper than official list prices of the old base trim. However, for not much more buyers could find existing Model S and X inventory. TSLA stock plunged, extending a monthlong slide.
Walmart, Target Guidance, Stocks Diverge
Big-box discount giants Walmart (WMT) and Target (TGT) released varying results this week. Dow Jones giant Walmart reported a surprise earnings gain early Thursday with a 4% EPS rise as revenue climbed 5.7% to $161.6 billion. Walmart raised full-year forecasts, though largely on the Q2 beat. WMT stock fell after results from near record highs. Early Wednesday, Target earnings skyrocketed 362% after five straight EPS declines. But sales fell for the first time in almost six years, with the 4.9% decline to $24.8 billion, worse than expected. Target slashed its full-year outlook noting additional pressure on consumers. Shares, which hit a three-year low ahead of earnings, popped on results but were little changed for the week.
In summary, the market fell into a correction as Treasury yields surged and Chinese economic concerns mounted. Retail sales in the US received a boost from Amazon Prime Day, contributing to strong consumer spending. Cisco Systems reported positive earnings growth, while Tesla faced pressure on profit margins due to price cuts. Walmart and Target released varying results, with Walmart reporting a surprise earnings gain and raising full-year forecasts, while Target saw a decline in sales and slashed its full-year outlook. Overall, the market remains volatile as economic uncertainties continue to impact investor sentiment.
Analyst comment
Negative news:
– The market fell into a correction due to surging Treasury yields and concerns over the Chinese economy.
– Tesla faced pressure on profit margins due to price cuts.
– Target saw a decline in sales and slashed its full-year outlook.
Positive news:
– Cisco Systems reported positive earnings growth.
– Retail sales in the US received a boost from Amazon Prime Day, contributing to strong consumer spending.
– Walmart reported a surprise earnings gain and raised full-year forecasts.
Neutral news:
– The US economy shows momentum in Q3 with strong data in consumer spending, retail sales, housing starts, and manufacturing index.
– China’s economy continues to struggle with weak data, and their central bank unexpectedly cut rates.
