U.S. stocks touched fresh record highs around market open before pulling back Tuesday, with both the S&P 500 and Dow ending lower.
Declines in the 30-stock Dow were led by a drop in shares of Home Depot (HD), after the home improvement retailer cut guidance for a second consecutive quarter. Payments company Visa (V) outperformed. In the S&P 500, the Energy sector sank as crude oil futures settled lower by more than 3%, while the Health-Care, Information Tech, Real Estate and Financials sectors ended higher.
Here’s where the markets settled Tuesday at the end of regular equity trading:
S&P 500 (^GSPC): -0.06%, or 1.85 points
Dow (^DJI): -0.36%, or 102.2 points
Nasdaq (^IXIC): +0.24%, or 20.72 points
10-year Treasury yield (^TNX): -2.2 bps to 1.786%
Gold (GC=F): +0.06% to $1,472.80 per ounce
Stocks have continued to make fresh record highs as U.S.-China trade tensions appeared to have deescalated and economic data improved.
That said, some analysts have pointed out that stocks’ recent run-up has pushed up valuations to the point that further trade deal progress may provide little further benefit for equities.
“Optimism about trade has been a factor behind the rally in global equities in the past month. But with a ‘mini-deal’ now largely discounted in the markets, and economic growth unlikely to do better than stagnate over the next couple of years, we suspect that any further upside for stock prices will be limited,” Simona Gambarini, market economist for Capital Economics, wrote in a note Tuesday.
More still, multiple reports over the past week have questioned the veracity of officials’ claims that the U.S. and China were close to getting a phase one trade deal down in writing, noting that debates over Chinese purchases of U.S. farm goods and whether or not to roll back existing tariffs remained.
But even as the interim trade deal hangs in balance, some economists believe the worst of the trade war between the U.S. and China has already come to pass, leading to further improvement in economic data next year.
Goldman Sachs economists led by Jan Hatzius said in a note Monday that they anticipate the drag on growth as a result of trade tensions will begin to recede in 2020, both in the U.S. and in China.
“We estimate that the trade war is currently subtracting roughly 1/2pp [half a percentage point] from sequential growth both in the U.S. and China,” the economists said. “Our expectations of an extended truce implies that both should enjoy a ‘subtraction of negatives’ as this drag on growth abates in 2020.”
STOCKS: Home Depot sales disappoint, Kohl’s cuts guidance
Home Depot (HD), the nation’s largest home improvement retailer, missed top-line expectations in the fiscal third quarter and lowered its guidance for the full year, citing a drag from some of the initiatives in its multi-year, $11 billion One Home Depot strategic initiative. It also sharply missed estimates for U.S. comparable same-store sales, with these growing just 3.8% versus the 5.4% expected, according to Bloomberg-compiled consensus data.
Overall comparable sales were up 3.6%, or short of the 4.6% increase anticipated, and sales of $27.22 billion fell short of the $27.5 billion consensus. Earnings per share of $2.53 were in-line with the Street’s estimates. Home Depot cut its sales guidance for a second straight quarter and said it now expects to see overall comparable same-store sales growth of 3.5%, down from its previous guidance for an increase of 4%.
Kohl’s (KSS) missed expectations for third-quarter results and cut its full-year profit outlook, sending shares of the retailer down 10% in early trading. Third-quarter comparable sales grew 0.4%, or about half the pace of increase anticipated. Revenue of $4.36 billion came up short of the $4.4 billion expected, and adjusted EPS of 74 cents was 12 cents below estimates.
Kohl’s slashed its full-year earnings guidance ahead of the key holiday shopping season. It said it expects adjusted EPS will be between $4.75 to $4.95, well below the $5.15 to $5.45 band previously expected.
ECONOMY: Building permits surge in October
New home construction was lighter than expected in October, but a measure serving as a gauge of future homebuilding topped estimates. The results reaffirmed a recovering domestic housing market as lower interest rates support buyers and builders.
Housing starts were at a seasonally adjusted annual rate of 1.314 million in October, the Commerce Department said Tuesday. This was below consensus expectations for an increase to 1.32 million, but still stronger than September’s upwardly revised 1.266 million. Single-family unit construction rose for a fifth consecutive month.
Building permits – a proxy for future homebuilding – rose by 5.0% to a seasonally adjusted annual rate of 1.461 million, marking the highest level since May 2007 and rising from September’s 1.391 million.
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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