Stocks fell on Wednesday as investors weighed a gloomy holiday quarter update from Target that pressured retail stocks.
The S&P 500 ended the day down 0.83% at 3,958.79, and the Nasdaq Composite shed 1.54% to 11,183.66. The Dow Jones Industrial Average wrestled with the flat line all day, but finished down 39.09 points, or 0.12% at 33,553.83.
Those moves came after Target reported a decline in sales as families deal with high inflation heading into the biggest shopping season of the year for retailers. The warning weighed on stocks, sending Target down more than 13% for its worst day since May. Macy's, Nordstrom, Kohl's and Gap were also down sharply.
"A volatile earnings season for retail is forcing investors to be picky and particular on their retail exposure as the gap between big box retail and specialty retail continues to widen," said Jeff Kilburg, founder and CEO of KKM Financial.
Brian Levitt, global market strategist at Invesco, called it a mixed picture, noting that retail data released earlier in the day was at odds with the Target warning.
"Retail sales data suggested consumers are willing to spend, particularly on big topic items while the retail bellwether Target warned of a weaker holiday season," he said. "The latter is more in line with our expectations. Tighter monetary policy is designed to make people feel less wealthy. The idea is to slow consumption, allowing inflation to moderate. Ironically that will also set the stage for a recovery. "
Stocks have staged a solid run following last week's better-than-feared consumer price index report. The S&P 500 last week posted its best weekly stretch since June, and all the major averages are on track to finish the month with gains.
Some investors say a near-term retreat is on the horizon, however.
"In the short term, the market is very extended and overdue to pull back and digest the recent rally," said Adam Sarhan, CEO of 50 Park Investments.
Buy Cisco ahead of earnings, equity strategist suggests
Cerity Partners chief equity strategist Jim Lebenthal said he would recommend buying Cisco ahead of its after-the-bell earnings report.
"Even if I get blown out on the earnings – don't think I will – this is still something I'm very comfortable holding for the long term," he said on CNBC's "Halftime Report."
Lebenthal said enterprise spending continues for years even if earnings turn downward for a quarter. He said to think about the stock longer term, looking at the benefits of its dividend yield and current "attractive" valuation.
He expects good results and guidance, while noting Wall Street is not all aligned on how it will perform. And Lebenthal called it a "steady Eddy," saying it does not get the attention it should.
"You stick with this," he said of its long-term potential.
Cisco has shed 29.8% so far this year as technology has struggled with investors rotating out of growth stocks. The internet company will have its first-quarter call at 4:30 p.m.
— Alex Harring
Treasury yields slide, recession worries rise
The 10-year Treasury yield temporarily sank below 3.7%, and the spread between it and the 2-year yield continued to fall deeper into negative territory.
That so called yield inversion is a warning of recession. The 10-year was 3.73% in afternoon trading, after dipping to 3.69%. The 2-year Treasury was at 4.35%.
"I still think there's more downside risk for rates from here. The curve inversion 2s/10s is negative 67. That could get to negative 75 in the near term," said Ian Lyngen at BMO.
He said a next target for the 10-yea yield would be 3.55%. Yields move lower as bond prices rise.
"A large impetus behind the rally is the market looking past the current tightening cycle and beginning to grow increasingly jittery about the potential for a more significant fallout, as the Fed continues to reiterate its willingeness to hike the economy into recession," said Lyngen.
Goldman's Mericle raises fed funds terminal rate forecast a quarter point to 5-5.25%
Goldman Sachs chief U.S. economist David Mericle added another quarter point to his target end rate for fed funds, to 5-5.25% from 4.75%-5.0% previously, a note Wednesday said.
Goldman continues to forecast that the Federal Reserve will add another half point to the overnight fed funds rate at its December meeting, followed by quarter point each in both February and March.
What's new is that Goldman is now calling for a further quarter point increase at the May, 2023 Fed policy meeting.
Mericle cited three reasons for the change:
- Household income is rising at the same time as government spending has stopped growing
- Inflation "is likely to remain uncomfortably high for a while, which could put pressure on the FOMC to deliver a longer string of small hikes next year"
- The Fed might have to counteract any slowdown in the pace of reduced government spending, or better inflation news leading to "a premature easing in financial conditions"
"Premature easing in financial conditions" translates in to a stock market rally.
— Scott Schnipper
Fed's Waller signals openness to half-point rate increase in December
Federal Reserve Governor Christopher Waller said he's open to pulling back on the level of interest rate increases at the December meeting.
Speaking in Phoenix, the central bank official noted that "the data of the past few weeks have made me more comfortable considering stepping down to a 50-basis-point hike," which would mark a reduction from four consecutive 75 basis point, 0.75 percentage point, rate increases.
However, he also noted that he remains unconvinced by last week's data showing inflation has cooled.
"I cannot emphasize enough that one report does not make a trend. It is way too early to conclude that inflation is headed sustainably down," he said.
Deutsche Bank says Meta is best positioned amid companies grappling with online advertising slides
Internet advertising has most immediately reflected broader economic uncertainty, according to Deutsche Bank. That has meant bad news for Big Technology stocks as overall revenue is largely tied to ads.
"As one of the most cyclical sub-sectors, online advertising has been most immediately impacted by the current macro-uncertainty," Lee Horowitz, a head of internet equity research, said in a note to clients.
Horowitz said the sliding ad revenue is more likely a function of tough year-over-year comparisons and the weaker tightening economy rather than a function of structural issues such as privacy changes and increased competition.
Of the tech stocks impacted by this shift, he said Meta is best positioned as its operating guidance for 2023 moderates. Reels monetization turns positive and new products will also help the Facebook parent. And, he said Meta will make up ground for what it lost when losing a system for tracking user behavior.
Meta has lost roughly 66% since the start of 2022 as investors have rotated out of Big Technology stocks.
— Alex Harring
Shares of Lincoln National can jump almost 35%, Goldman Sachs says
Goldman Sachs analyst Alex Scott upgraded shares of Lincoln National to buy from neutral, saying the company will be able to bounce back from an outsized charge that recently shook investor confidence in the stock.
″[The] company should be able to rebuild its capital base and display its relatively strong underlying capital generation faster than investors are expecting," Scott wrote in a note Wednesday.
— Sarah Min
US soft landing is succeeding so far, Goldman says
So far, it looks like the U.S. is achieving the soft economic landing the Federal Reserve hoped for when it started raising interest rates to tame inflation, said Goldman Sachs.
"US stocks are trading lower Wednesday with defensives outperforming cyclicals on the back of an earnings miss from TGT set against a surprisingly stronger-than-expected October Retail Sales release," analysts wrote.
Yields on the 10-year U.S. Treasury were also lower Wednesday, about half a percentage point from where they peaked a week and a half ago.
"The move lower in rates has helped to support a pro-cyclical rally as investors begin to price in, perhaps, a higher likelihood that the Fed will successfully engineer a soft landing of the US economy," according to the note. "But interestingly, today the rally has turned towards defensives even as rates continue to trend lower -- suggesting perhaps that investors may also be a bit concerned that the inflation medicine (slow growth) may eventually impact the earnings of pro-cyclicals a bit more than defensives."
Goldman also put out some of its forecasts for 2023. Next year, the firm expects that globally, growth will remain slow at only 1.8% due to U.S. resilience offsetting a European recession. Inflation in the U.S. should subside as the Fed continues to hike, avoiding a recession.
In Europe, the UK and EU will experience a mild recession driven by higher energy prices. China should rebound in April as they reopen.
Target, Carnival and Restaurant Brands International among stocks moving midday
These are some of the stocks making the biggest moves midday.
Target – Shares of the big box retailer tumbled more than 12% after the company said its profit fell by around 50% in its fiscal third quarter and cut its fourth-quarter outlook, after seeing sales slow in late October. Other retail names such as Macy's, Gap and Nordstrom followed Target lower.
Carnival Cruise – Shares of Carnival Cruise lines shed 13.6% after the cruise operator announced it would offer $1 billion in convertible debt as part of its 2024 refinancing plan.
Restaurant Brands International — Shares of the Burger King parent company popped 6.4% after the company announced plans to hire former Domino's Pizza CEO Patrick Doyle as executive chair.
Read the full list of stocks making the biggest moves midday here.
— Samantha Subin
Dlocal plunges after Carson Block announces short position
Shares of Latin-America focused financial technology company Dlocal slumped more than 27% Wednesday after Carson Block, CEO and owner of Muddy Waters, announced a short position in the company.
"We are highly concerned that this company is a fraud," Block told CNBC's The Exchange Wednesday, adding that revisions in the company's reports and other filings signaled that there is something problematic happening at the firm.
Muddy Waters released a report on Dlocal on Wednesday citing "concerns over its disclosures about, and controls of, client funds."
Dlocal has not commented on the allegations.
Sell Zoom Video before it falls even further, Citi says
Citi analyst Tyler Radke lowered his price target, and maintained a sell rating on Zoom Video, saying that a tougher macro environment and rising competition will hurt the company's growth prospects.
"ZM's post-COVID recovery, may continue to falter in Q3 as tightening IT budgets and a weaker macro outlook keep SMB new customer acquisitions low and churn elevated," Radke wrote in a Tuesday note.
Read the full CNBC Pro story here.
— Sarah Min
Boeing and Lockheed Martin among this year's midterm winners, Credit Suisse says
"BA benefits from a more favorable legislative path for an extension of the crew alerting system implementation deadline beyond Dec 31, which would provide welcome relief for MAX-7 and MAX-10 certification risk," wrote analyst Scott Deuschle in a note to clients Wednesday.
The Democrats keeping the Senate could also bode well for Boeing as Sen. Patty Murray of Washington is positioned to chair the Senate Appropriations Committee, he said.
Meanwhile, Deuschle expects Lockheed Martin to benefit from Rep. Kay Granger of Ft. Worth taking over the House Appropriations Committee.
"F-35 final assembly is located in Ft. Worth. Finally, Rep. Mike Rogers (R-AL) appears set to take the House Armed Services Committee chair, another potential positive for LMT given production of several missile franchises in Alabama," he wrote.
That said, Credit Suisse views a split Congress as a "slight negative" for the defense industry.
"On the upside, Republicans have historically been stronger advocates for increased defense spending, so their increased power in the budgetary process is a positive in that sense," Deuschle wrote. "On the downside, a split Congress arguably creates risk of budget gridlock and a lengthy continuing resolution."
— Samantha Subin
Oscar Health can jump nearly 40%, Wells Fargo says
Wells Fargo analyst Stephen Baxter upgraded the stock to overweight from equal weight, saying the outlook for the health insurance company appears "favorable" after the stock cratered 63% in 2022.
"While the range of outcomes remains wide, we believe risk/reward skews to the upside following significant YTD underperformance," Baxter wrote in a Tuesday note.
CNBC Pro subscribers can read more here.
— Sarah Min
Target is 'taking the right steps' despite disappointing quarterly results, UBS says
Target is proactively working to address its issues and return to top and bottom-line growth despite near-term challenges ahead, according to UBS.
"Overall, we think TGT's 3Q results suggest it's still working through some NT challenges," wrote analyst Michael Lasser in a note to clients Wednesday. "On the positive side, the retailer continues to drive traffic which speaks to its strong customer loyalty & brand awareness. Plus, its inventory position improved sequentially."
Target shares plunged 15% after the retailer slashed its fourth-quarter outlook and said it plans to cut $3 billion in costs over the next three years.
But even with the discouraging print and the sharp pullback in the stock Wednesday, Lasser views Target positively, expecting solid upside for shares in the long term.
"Further, it's now set a low bar heading into 4Q, and we continue to believe the retailer is taking the right steps to return to more consistent top & bottom line growth in FY'23 and FY'24," he said.
— Samantha Subin
Homebuilder sentiment falls to a decade low
Homebuilder sentiment in the single-family housing market fell to the lowest level in a decade in November, as builders continue to struggle with higher costs for labor and materials and lower demand from homebuyers.
A monthly sentiment index from the National Association of Home Builders dropped 5 points from October to 33. That is the eleventh straight monthly decline and the lowest level since June 2012, with the exception of a very brief drop at the start of the Covid-19 pandemic that was followed by a strong rebound.
For more on the data check out our full story here.
— Diana Olick, Tanaya Macheel
Raymond James downgrades Home Depot, cites challenges ahead
Raymond James analyst Bobby Griffin downgraded shares of Home Depot to market perform from outperform, foreseeing challenges next year for the housing sector.
"Our change in opinion is not a reflection of Home Depot's execution (has been solid), but more so our view that the risk/reward for HD entering 2023 now appears more balanced, with the ongoing risk/headwinds to the U.S. housing industry and the stock recovering nicely off its 2022 lows," Griffin wrote in a Wednesday note.
CNBC Pro subscribers can read more here.
— Sarah Min
Retail stocks remain under pressure following Target warning, with some bright spots
Several retail stocks were down on Wednesday morning following Target's weak financial results and sales outlook.
Target itself was down 15% shortly after the opening bell. Nordstrom suffered a 9% decline, while Macy's and Gap each fell roughly 7%.
The SPDR S&P Retail ETF was down by 3.9%.
Lowe's shares were higher, however by 3.8% after the company reported raised its full-year earnings forecast and reported strong results. Walmart held onto a 1% gain after reporting strong results Tuesday. Costco fought its way into positive territory.
— Tanaya Macheel
Stocks slide at the open
U.S. equities opened lower on Wednesday as the Target warning weighed on retail names.
The Dow Jones Industrial Average dipped by 46 points to start the day. The S&P 500 fell 0.4% and the Nasdaq Composite dropped 0.9%.
— Tanaya Macheel
Retail sales top expectations as consumers keep pace with inflation
Retail spending rose slightly more than expected in October as consumer spending held up despite higher prices.
Advance sales for the month climbed 1.3%, just above the 1.2% Dow Jones estimate, the Commerce Department reported Wednesday. The number excluding autos also was a gain of 1.3%, compared to the estimate of 0.6%. The sales totals are not adjusted for inflation, which rose 0.4% for the month as measured by the consumer price index.
Gas stations led the increase, accelerating 4.1%, followed by restaurants and bars, which saw receipts up 1.6%, and food and beverage stores, which reported 1.4% growth. Online sales were up 1.2%.
The retail sales report comes amid a cautionary tone on Wall Street regarding consumer behavior.
Target rattled investors Wednesday morning when the big-box retailer reported weaker than expected earnings and lowered guidance. CEO Brian Cornell warned that shoppers are "increasingly impacted by inflation, rising interest rates and economic uncertainty"
That ran counter to the tone Tuesday from Walmart, which reported strong earnings and raised its guidance, though CFO John David Rainey noted that "pocketbooks are stretched" for consumers.
Carnival Cruise shares slump in premarket trading
Shares of Carnival Cruise Lines are taking a tumble. The stock fell more than 13% in premarket trading Wednesday after the company announced that it would offer $1 billion in convertible debt as part of its 2024 refinancing plan.
Other cruise operators, which generally all trade in step with each other, were down in premarket trading. Shares of Norwegian Cruise Line Holdings fell 2.8% and Royal Caribbean slipped 2.7%.
Lowe's climbs after earnings beat
Shares of Lowe's rose about 2% in premarket trading after the home improvement retailer beat estimates on the top and bottom lines for the third quarter and raised its full-year earnings forecast.
Lowe's reported $3.27 in adjusted earnings per share on $23.48 billion of revenue. Analysts surveyed by Refinitiv had penciled in $3.13 in earnings per share on $23.10 billion of revenue. Comparable sales also beat expectations, according to StreetAccount.
For the U.S. home improvement business in particular, comparable sales rose 3%.
— Jesse Pound
Target warning weighs on retail stocks in premarket trading
Retail stocks were down in early morning trading after Target cut its holiday quarter outlook.
Walmart, Bed Bath & Beyond, Home Depot and Costco slipped about 1%. Costco and Dollar General lost about 2% each. Kohl's and Macy's fell 3%.
The SPDR S&P Retail ETF was down by almost 2%.
— Tanaya Macheel
Target tumbles 13% after weak holiday quarter warning
Shares of Target dropped, weighing on overall market futures, after the retailer reported third-quarter profit that fell way short of estimates and cut its fourth-quarter outlook.
Earnings per share for the prior quarter came in at $1.54 a share, down 49% from the same quarter a year ago and below the $2.13 estimate expected by analysts, according to Refinitiv.
Target said in a statement about the upcoming crucial holiday period: "Based on softening sales and profit trends that emerged late in the third quarter and persisted into November, the Company believes it is prudent to plan for a wide range of sales outcomes in the fourth quarter, centered around a low-single digit decline in comparable sales, consistent with those recent trends."
Analysts were expecting sales in the fourth quarter to increase by low single digits.
Target shares were last down 13% in premarket trading.
— John Melloy
Qualcomm can jump nearly 20% from here, Credit Suisse says
Credit Suisse analyst Chris Caso initiated Qualcomm with an outperform rating, noting the stock could move about 20% higher from current levels.
"We think QCOM possesses more short-term security vs. others (since Android has already corrected and QCOM is shipping below consumption), there's a revenue catalyst from Samsung share gains in CY23, medium-term optionality (should they sign a contract with AAPL for the iPhone modem beyond iPhone 15), and a longer-term catalyst from auto," Caso wrote in a Tuesday note.
— Sarah Min
UK inflation hits 41-year high of 11.1% as food and energy prices continue to soar
U.K. inflation jumped to a 41-year high of 11.1% in October, exceeding expectations as food, transport and energy prices continued to squeeze households and businesses.
"Indicative modelled consumer price inflation estimates suggest that the CPI rate would have last been higher in October 1981, where the estimate for the annual inflation rate was 11.2%," the Office for National Statistics said.
On a monthly basis, the CPI rose 2% in October, matching the annual CPI inflation rate between July 2020 and 2021.
- Elliot Smith
European markets mostly lower as geopolitical tensions rise after Poland missile incident
European markets were mostly lower on Wednesday morning as political instability gripped the region after a missile hit Polish territory, raising tensions between Russia and NATO.
The pan-European Stoxx 600 slipped 0.2% below the flatline in early trade, with autos shedding 2% while oil and gas stocks added 0.8%.
- Elliot Smith
CNBC Pro: The Fed 'pivot' is dead, says strategist, who shares where to invest right now
Fidelity says the notion that a pivot from the Federal Reserve's hawkish stance will benefit equities is "dead."
Salman Ahmed, global head of macro and strategic asset allocation at the investment management firm, said he is concerned about short-term stock performance and suggests investor consider a different asset class instead.
— Ganesh Rao
Tencent to report earnings, reportedly starting new round of job cuts
Chinese tech giant Tencent is due to report third-quarter earnings late in Asia.
The company is expected to see another drop in revenue after posting the first-ever revenue decline in the previous quarter ending in June. A median forecast from Refinitiv predicts a fall of 0.47% to 141.7 billion Chinese yuan ($20 billion).
Separately, sources told Reuters that Tencent is starting a new round of job cuts. The news comes as tech firms around the world announce layoffs.
Tencent shares rose as much as 3% in early trade, and were last up 0.83%, compared with a 0.81% fall in the broader Hang Seng index.
— Abigail Ng, Jihye Lee
JPMorgan lowers its GDP forecasts for China
JPMorgan downgraded its economic forecasts for China in response to developments including a recent surge in Covid cases and a "notable drag on domestic activity," analysts said in a note.
The investment bank now expects China's GDP growth for 2022 to come in at 2.9%, down from its previous forecast of 3.1%. In 2023, JPMorgan sees China's economy growing 4%, compared with an earlier prediction of 4.5%.
October's retail sales and industrial production data released Tuesday disappointed as global growth slowed and China battled Covid outbreaks.
— Abigail Ng, Michael Bloom
CNBC Pro: These biotech stocks look cheap — and analysts give 2 more than 100% upside
Fundstrat said some biotechnology stocks are worth following and that the sub-sector is currently the strongest within the health industry.
Mark Newton, head of technical strategy at research firm Fundstrat, said the sector is "a key part of the reason why Healthcare likely shows strong 4Q [fourth quarter] outperformance," according to a Nov. 14 note.
To identify biotech stocks that look cheap and are expected to rally looking ahead, CNBC Pro screened the iShares Biotechnology ETF on FactSet. Here are 8:
— Weizhen Tan
What to expect from October retail sales
Wednesday's retail sales report will offer another peek at consumer spending habits in the face of stubborn inflation.
The data is expected to show a 1.2% jump in retail sales in October, up from a flat print in September, according to Dow Jones' estimates. Excluding autos, retail sales are expected to rise 0.6%, compared to a 0.1% gain in September.
— Samantha Subin
Advance Auto Parts falls on earnings miss, disappointing forecast
Shares of Advance Auto Parts tumbled 10% in overnight trading after the company posted mixed results for the recent quarter.
Earnings per share came in 50 cents below Wall Street's earnings per share estimates, while revenue fell in line with analysts' expectations. The auto parts retailer also posted a weak EPS outlook for the full year.
— Samantha Subin
Stock futures open lower
Stock futures opened lower in overnight trading Tuesday.
Futures tied to the Dow Jones Industrial Average fell 97 points, or 0.29%. S&P 500 and Nasdaq 100 futures shed 0.34% and 0.32%, respectively.
— Samantha Subin