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Markets had their worst day in three months. Reality may be catching up with them.
What you need to know today
- U.S. stocks took a beating on Tuesday as all major indexes fell at least 2%, while Treasury yields climbed to three-month highs.
- Retail giants Walmart and Home Depot reported fourth-quarter earnings. Walmart easily beat estimates, but Home Depot didn't do as well. More importantly, both companies are bracing for a slowdown in consumer spending this year. Walmart shares eked out a gain, but Home Depot fell 7%.
- Microsoft's planned $69 billion acquisition of Activision Blizzard has a new supporter: Nvidia. The chipmaker, which originally opposed the deal, changed its mind after Microsoft said it would bring its games to Nvidia's cloud gaming service.
- Two presidents gave speeches on Tuesday. Russian President Vladimir Putin blamed the West for starting the war in Ukraine — though the war started when Russia invaded Ukraine — and withdrew from a nuclear treaty. Hours later, U.S. President Joe Biden reaffirmed NATO's commitment to Ukraine and pledged that "Ukraine will never be a victory for Russia."
- PRO Tech stocks have outpaced the wider market this year. But "the actual leadership is profitless Nasdaq junk" that is risky for investors to own, said Josh Brown, CEO of Ritholtz Wealth Management.
The bottom line
It was an awful day for markets. Let's jump straight into the numbers: The Dow Jones Industrial Average dropped 2.06% and the S&P 500 lost 2%. It was both indexes' worst day since Dec. 15. The Nasdaq Composite had an even poorer showing, losing 2.5%. Indeed, the recent outperformance of growth stocks on the Nasdaq could be a mere mirage. "We remain least preferred on the tech sector overall, especially US," said UBS.
U.S. markets were weighed down by lackluster outlooks from Walmart and Home Depot. Walmart's soft outlook suggests that consumers are feeling the pinch from rising prices. Meanwhile, Home Depot's struggles indicate that the housing market is still buckling under rising interest rates. That pessimism was reflected in the S&P — consumer discretionary stocks saw the largest decline of 3.3%.
Some analysts think stocks are facing the reality of higher interest rates — a scenario the bond market has priced in. On Tuesday, the 10-year Treasury yield climbed to 3.9%, while the 2-year rate rose to 4.7%, numbers not seen since November. "I think it's the equity markets that finally caught up to what the Treasury markets have been saying for a couple of weeks," said B. Riley Wealth's Chief Market Strategist Art Hogan. When the Federal Reserve's minutes are released Wednesday, markets will also find out what central bankers have been saying — and, perhaps for the first time this year, react accordingly.
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