Home Depot Inc fell 5.4% to a three-month low after the No. 1 domestic home improvement chain warned of weakening demand and issued a dour profit forecast for 2023.
Smaller rival Lowe’s Cos Inc fell 4.8% ahead of its results next week.
Walmart, the world’s largest retailer, shed 0.2% after it forecast full-year earnings below estimates and painted a grim picture of hotter-than-expected food inflation squeezing profit margins.
“Walmart is a bellwether for how the consumer is doing and the fact is that they envision that the consumer may be getting to that point of having to pull back,” said Art Hogan, chief market strategist at B Riley Wealth.
Analysts are expecting earnings of S&P 500 companies to grow by 1.6% in 2023, compared to a 4.4% growth estimated at the start of the year, as per Refinitiv data.
Ten of the major 11 S&P 500 sectors fell, with the consumer discretionary index slumping 2.1%.
At 10:02 a.m. ET, the Dow Jones Industrial Average was down 424.64 points, or 1.26%, at 33,402.05, the S&P 500 was down 47.46 points, or 1.16%, at 4,031.63, and the Nasdaq Composite was down 165.27 points, or 1.40%, at 11,622.00.
U.S. stocks have added to their gains so far this year after its worst annual showing in more than a decade in 2022, as investors hoped the central bank’s rate-hike cycle was nearing its end.
However, recent economic data has pointed to a resilient economy with inflation far from the Fed’s 2% target, raising bets for two or three more 25 basis point increases.
The central bank has got more wiggle room to raise rates as U.S. business activity unexpectedly rebounded in February, according to a survey, underpinned by a robust services sector.
Money market participants see the benchmark level peaking to a 5.3% in July, and staying near those levels throughout the year.
Adding to the glum mood, yield on the U.S. benchmark 10-year Treasury note edged higher, pressuring rate-sensitive growth stocks.
Apple Inc, Amazon.com Inc, Microsoft Corp and Google-parent Alphabet Inc fell between 1.6% and 1.6%.
In a bright spot, Meta Platforms Inc added 0.7% after the Facebook parent said it is testing a monthly subscription service called Meta Verified, which will let users verify their accounts using a government ID and get a blue badge.
Declining issues outnumbered advancers for a 5.23-to-1 ratio on the NYSE and by a 3.50-to-1 ratio on the Nasdaq.
The S&P index recorded one new 52-week highs and one new lows, while the Nasdaq recorded 26 new highs and 50 new lows.
The S&P 500 now accurately reflects signs of better-than-expected economic growth and a drop in bond yields, according to Goldman Sachs Group Inc. strategists led by David Kostin. At the same time, higher valuations, lackluster corporate earnings and elevated interest rates mean there’s little room for the rally to extend, they said, a view that was broadly echoed by their counterpart at Morgan Stanley, Michael Wilson.
To Solita Marcelli at UBS Global Wealth Management, the risk-reward trade-off for equities doesn’t look appealing. She continues to recommend that equity investors position defensively and be prepared for additional volatility ahead.
“We remain bearish equities,” said Eric Johnston at Cantor Fitzgerald. “There has been a dramatic change in sentiment and positioning which has gotten much more bullish, making this a tailwind for our bearish view. And while this dramatic change has happened, the outlook for earnings, the Fed, and multiples is unchanged. All of the stock being bought now will just create that much more supply on the way down.”
Now with the path for further monetary tightening in focus, bond investors still broadly expect U.S. inflation to ebb further. The so-called breakeven rate on five-year five-year forwards — a proxy for inflation expectations — slumped to 2.18 per cent on Friday from 2.31 per cent a week prior. It was little changed Tuesday.