Sale On Wall Street: Market Win Streak Over as Wal-Mart Tumbles 10%

Wal-Mart shares plunged 10% Tuesday, helping spread weakness to the Dow Jones Industrial Average and across Wall Street, with retail taking the biggest hit.

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(Tuesday Market Close) Attention retail shoppers: The six-day win streak has ended on Wall Street.

When you have a stock index as narrow as the Dow Jones Industrial Average ($DJI), sometimes all it takes is bad news from one big name to cause a really rough day. That appears to be what happened Tuesday with Wal-Mart (WMT). Shares of the retailer fell 10% after releasing an earnings report that came up short of analysts’ expectations, helping break the $DJI’s six-session string of higher settlements. At one point late in the session, the $DJI fell more than 300 points before pulling itself back a little. 

For a while, the S&P 500 (SPX) and Nasdaq (COMP) resisted the contagion and struggled to make light gains. By the end of the day, however, the SPX was also moderately in the red and the COMP was barely changed. WMT and other consumer staples in general really seemed to cast a shadow over everything, as concerns spread that WMT’s issues could affect the rest of the industry. For instance, WMT competitor Target (TGT) also fell about 3%, and Costco (COST) fell nearly 2%. GAP (GPS) and Kroger (KR) lost ground, too. 

However, it’s arguable that the WMT wound was kind of self-inflicted in that the company said it was going to draw down a little bit this quarter because it needed to improve technology on its web site. The company’s E-commerce sales growth slowed from the prior quarter to just 23%, down from 50%. However, a lot of that was planned, WMT said, as it works to grow  the business. WMT says it expects e-commerce sales to grow 40% this year. Keep in mind, too, that WMT actually beat analysts’ expectations on the revenue side of things. Same-store sales rose.

There could be a silver lining to this, in that consumers often “shop up” to the next level of store during booming economic times. TGT is due to report its results on March 6 before the open, so it could be insightful to check its quarter when the data comes out. Before that, Kohl’s (KSS) reports March 1, another competitor investors might want to watch to see if this is a trend or isolated to WMT.

Also, Home Depot (HD) reported Tuesday and exceeded Wall Street analysts’ expectations, possibly a good sign for those monitoring consumer health. HD shares kept their chin above water much of the day as other retailers sputtered, but fell slightly beneath the surface by the time the closing bell rang.

While WMT wasn’t the only falling stock among the 30 in the $DJI Tuesday, its losses of 10% helped crater the index. With Tuesday’s losses factored in, the $DJI is barely up for the year. 

Volatility remains a factor, with the VIX “fear index” staying above 20 most of the day Tuesday. That said, it didn’t spike late in the session when selling picked up in stocks, perhaps a sign that some of the more choppy stuff might be behind us. Even so, things remain in flux, and now isn’t necessarily the time for investors to let up their guard.

Consumer staples, the sector where WMT holds court, took the biggest punch to the face Tuesday, falling more than 2%. Still, it wasn’t a picnic for any sector. The selling left virtually no section of the market untouched. Some of the interest rate-sensitive stocks like telecom and utilities fell more than 1% as the benchmark 10-year Treasury yield hit a new four-year high of 2.93% intraday before falling back below 2.9% by day’s end.

One sector that did manage to stay in the green Tuesday was info tech, and that looked like it might be due in part to Qualcomm (QCOM) raising its bid Tuesday for NXP Semiconductors (NXPI), to $127.50 a share, 16% percent more than originally proposed, the financial media reported. With QCOM’s bid, the tech-heavy COMP held in there with only slight losses on the day. Arguably, QCOM’s raised bid helped the chipmakers in general because it might have caused many investors to re-evaluate all of the chipmakers. The thinking might have been along the lines of, “QCOM knows what it’s doing, and if it thinks NXPI is worth that much, maybe this makes all the chipmakers worth more,” causing strength to spill over throughout the sector.

Looking ahead to Wednesday, existing home sales for January are due soon after the open, followed by Fed minutes in the early afternoon.

Consumer Staples

FIGURE 1: SHOPPING CART.

Over the last month, consumer staples (candlestick chart) have come down quite a bit. Tuesday was only one of several deep-red days recently. Meanwhile, consumer discretionary shares (purple line) pretty much matched the performance of staples. Data source: Standard & Poor’s. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

Good Trading,
JJ
@TDAJJKinahan

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