US stock futures were on a downturn Tuesday morning to start a busy holiday-shortened trading week as investors weighed profit losses at big retailers and the prospect of higher interest rates for an extended period.
US stock and bond markets were closed Monday for President’s Day.
Futures tied to the S&P 500 (^GSPC) fell 0.7%, while futures on the Dow Jones Industrial Average (^DJI) lost about 200 points, or 0.6%. Contracts on the tech-heavy Nasdaq Composite (^IXIC) fell 0.9%.
Investors evaluated quarterly financials from Walmart (WMT) and Home Depot (HD) ahead of the bell for updates on the health of the US consumer, who so far has shown resilience amid stubbornly high inflation — most recently buoyed by stunning retail sales in the January occupies sales data from last week.
However, Walmart warned Tuesday morning that it is cautious about the outlook for the economy and consumers, pressured by inflation, are looking for cheaper items that could negatively impact margins. The retail giant also released full-year earnings guidance that came in below Wall Street estimates. Shares are down about 3.8% premarket.
“The consumer is still under a lot of pressure, and if you look at economic indicators, balance sheets are thinning and saving rates are down compared to previous periods,” Walmart chief financial officer John Rainey said during a conference call. “That’s why we’re rather cautious about the rest of the year.”
MIAMI, FLORIDA – JANUARY 24: A worker stocks the shelves at a Walmart store on January 24, 2023 in Miami, Florida. (Photo by Joe Raedle/Getty Images)
A similar picture was presented by home improvement retailer Home Depot, which also reported disappointing fourth-quarter results and said it faces a challenging 2023. Shares were down more than 4% before the open.
On Friday, the Dow Jones Industrial Average recorded its third straight week of losses for the first time since September, closing down 0.1% in the five-day trading period. The S&P 500 fell 0.3% this week, its second consecutive week down, while the Nasdaq was a blip, posting a weekly gain of 0.6%.
The story goes on
“There is a quiet positive pulse in the markets as investors remain cautious about the direction of interest rates in the United States but are hopeful that the recovery elsewhere will help trade,” said Susannah Streeter, Hargreaves’ head of money and markets Lansdown in a note. “There are still concerns that US inflation will take a long time to get into a shape that means higher interest rates will have to last longer, sentiment that has supported the dollar.”
Elsewhere in the market, government bond yields rose, with the benchmark 10-year bond up 5 basis points to return 3.88% early in the day. The US dollar also climbed higher. On the commodity side, West Texas Intermediate (WTI) crude oil futures — the US oil benchmark — rose 0.9% to around $77 a barrel.
A trader works on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., February 17, 2023. REUTERS/Brendan McDermid
Later in the week, Wall Street will read the minutes of the Federal Open Market Committee’s last meeting earlier this month.
The release will provide clues to the next rate hike in March, which some investors are now expecting to reach 50 basis points following strong economic data and better-than-expected inflation readings.
Last week, Fed Chair Loretta Mester said she would have preferred a 50 basis point hike in interest rates on Feb. 1 rather than the smaller quarter-point hike her peers had opted for.
Traders worried about inflation and the way forward for interest rates are also awaiting the Personal Consumption Expenditure (PCE) Index — the Fed’s most closely watched assessment of how fast prices are rising across the economy — due on Sept Slated to be released Friday morning.
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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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