U.S. stocks fell on Tuesday, erasing earlier gains as the market failed to keep its rebound from the bear-market lows going.
The blue-chip Dow Jones Industrial Average fell 417 points, or 1.3%. The S&P 500 dropped 1.8%, and the Nasdaq Composite was the laggard, down 2.6%.
Major averages cut gains after disappointing economic data. The consumer confidence index fell to a reading of 98.7, down from 103.2 in May and missing a Dow Jones estimate of 100, according to The Conference Board. The weak data came as fears of a recession have increased lately as the Federal Reserve tries to combat surging inflation with aggressive rate hikes.
The Conference Board also said 12-month inflation expectations for its consumer confidence survey were at 8% for June, the highest level in data going back to August 1987.
“Right now we are at an inflection point in the economy, where actual spending and economic activity is still positive, however, consumer confidence and financial conditions (especially interest rates) are indicating a slowdown ahead,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance. “If we are able to avoid a recession then the stock market is fairly valued, however, if we do go into recession then we would expect the lows for the year haven’t been hit yet.”
Stock moves followed modest losses on Wall Street as a comeback rally stalled in the previous session. Investors are still searching for a market bottom and hoping last week’s rally sticks, although there doesn’t appear to be a clear catalyst for a meaningful rebound.
“One of the trickier calls in this business is evaluating the difference between a bounce in a bear market vs. the start of a more durable advance,” wrote Chris Verrone, technical analyst with Strategas. “The current bounce, +8% over the last 4 trading days, has been impressive on the surface as most moves of this context tend to be, but again has yet to signal any resounding internal or leadership improvement.”
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Retail stocks fell after the release of the consumer confidence data. Bath & Body Works lost 4%. Home Depot, Lowe’s and Macy’s each lost more than 2%. The SPDR S&P Retail ETF was down by 2.9%.
Shares of Nike fell more than 6% even after the sportswear company topped Wall Street’s earnings and sales expectations for the fiscal fourth-quarter. The company said it anticipates flat to slightly up revenue for its fiscal first-quarter versus the prior year, and low double-digit revenue for 2023 on a currency-neutral basis, as it continues to manage Covid disruption in Greater China.
Chip stocks saw big declines, with Advanced Micro Devices down 6%, and Nvidia and Marvel lower by more than 4% each. Meanwhile, Qualcomm jumped 5% after an analyst predicted Apple will use its modems for the 2023 iPhone.
On Tuesday, China relaxed its Covid restrictions for inbound travelers, cutting their quarantine time upon arrival by half to seven days. That gave travel and casino stocks a lift. Wynn Resorts and Las Vegas Sands rose more than 7% each. United jumped 6%, while American and Delta Air Lines added more than 5% each.
Disney shares also rose more than 3% after the company announced its Shanghai Disneyland will reopen this week.
Several major banks raised their dividends in response to successfully clearing this year’s Federal Reserve stress tests, including Bank of America, Morgan Stanley and Goldman Sachs. JPMorgan and Citigroup, however, said increasingly stringent capital requirements forced them to keep their dividends unchanged.
Morgan Stanley shares gained 1%.
On Monday, the major averages posted more modest losses, after rallying last week off their lows for the year and hitting their first positive week since May. The S&P 500 is still down 18% on the year but is up more than 7% from its low hit in mid-June.
“Market bulls who have had the rug repeatedly pulled out from under them this year may understandably be suspect of the rally, since many of 2022’s upswings have quickly given way to fresh lows and this time may be no different,” said Chris Larkin, managing director of trading at E-Trade.
Despite last week’s bounce, the S&P 500 is down 15% in the second quarter, on track to post its worst quarter since the first quarter of 2020, at the depth of the pandemic.
