Note: Our daily “S&P 500 Outlook, Forecast, and Trading plan for Thursday, 05/23” will be posted around 8:30am EDT, Thursday.
THE GIST (“THE WHAT”)
Primarily driven by retail earnings hits and misses, the S&P 500 index gave back gains from previous session’s relief rally. With no new development around the stalled US – China trade talks, investors turned their attention to key retail earnings looking for clues of the potential impact of tariff spat between the world’s two largest economies. Falling oil prices further compounded the day’s declines.
Investors’ reaction to the minutes of Fed’s latest policy meeting, which reaffirmed the central bank’s accommodative stance, was mostly muted. Trading lower, the index closed off of session lows at 2856.27, down 8.09 points and losing 0.28% with defensive sectors partially offsetting major weakness in Energy and Consumer Discretionary sectors.
THE DETAILS (The “How & Why”):
Energy sector led the day’s declines, closing 1.58% lower hurt by falling oil prices following a surprise increase in U.S. crude stockpiles for the second straight week. EQT Corp., Devon Energy Corp and Concho Resources Inc. were the worst decliners within this space, tumbling 6.99%, 5.82% and 4.96%, respectively. National Oilwell Varco Inc., Noble Energy Inc., Cimarex Energy Co and Hess Corp all fell more than 3% each.
Retail stocks extended declines for the second straight session following a second round of disappointing earnings. Lowe’s Cos, Nordstrom Inc. and L Brands Inc. fell sharply by 11.85%, 9.25% and 5.20%, respectively on missing revenue and earnings estimates and posting gloomy outlook, adding to the investors’ worries of price inflation in the consumer products amid ongoing tit-for-tat tariff spat between U.S. and China.
Target Inc. however bucked the trend within the Consumer Discretionary space, jumping 7.78% to be the best performer of the session on topping revenue and earnings expectations on the back of improving stores, merchandise and digital capabilities.
Trade-sensitive sectors extended their weakness amid lingering trade tensions. Industrials, Materials and Technology shed another 0.82%, 0.66% and 0.57%, respectively.
Qualcomm Inc. plunged 10.86% on reports that a federal judge has ruled that the chip equipment company has violated antitrust laws. Apple Inc. also weighed down heavily on the technology space, falling 2.05% after Goldman Sachs warned that earnings of the iPhone maker could fall hard if China bans its products in retaliation to the U.S. sanctions on Huawei Technologies Inc.
Investors’ reaction to the minutes from the latest meeting of the Federal Reserve’s monetary-policy committee was mostly muted after it reiterated the central bank’s accommodative stance for now. The 10-year Treasury yield fell amidst rising Brexit uncertainty on reports that the U.K. Prime Minister Theresa May continues to struggle to gather support for another vote on her thrice-rejected plan to leave the European Union.
Financial stocks also closed modestly lower by 0.50% alongside falling yields.
On the bright side, with the closely monitored US – China trade talks stalled for now, investors favored defensive-play stocks. Utilities, Health Care, Consumer Staples and Real Estate were all modestly higher for the session by 0.82%, 0.63%, 0.55% and 0.41%, respectively.