Benzinga - by Shanthi Rexaline, Benzinga Editor. Sentiment has reversed on Tuesday after Monday's tech-inspired market strength, as traders focus on China’s unexpected rate cut and remain wary about the July retail sales report due ahead of the market open. Investors reacted negatively to Home Depot, Inc.’s (NYSE:HD) second-quarter earnings report, as they focused on the lack of sales growth and the cautious commentary from the management. Rising bond yields could also curb investors’ risk appetite.
Cues From Monday's Trading:
Stocks ignored some early apprehensions on Monday before closing higher for the session. The tech-heavy Nasdaq Composite Index and the broader S&P 500 Index started weaker but they reversed course in late-morning trading and spent the rest of the session in the green.
The Dow Industrials languished in negative territory for the bulk of the session before moving decisively higher in the final few minutes of trading. On the other hand, small-caps closed lower, with the Russell 2000 Index retreating to a one-month low.
Communication services and IT stock carried through the market through, offsetting the lackluster sentiment toward most other sectors.
US Index Performance On Monday
| Index | Performance (+/-) | Value |
| Nasdaq Composite | +1.05% | 13,788.33 |
| S&P 500 Index | +0.58% | 4,489.72 |
| Dow Industrials | +0.07% | 35,307.63 |
| Russell 2000 | -0.24% | 1,920.49 |
Analyst Color:
The debt rating downgrade of the U.S.’ sovereign rating may keep the 10-year Treasury yield above its fair value in the near term, notwithstanding the cooling inflation, said LPL analysts Jeffrey Buchbinder and Lawrence Gillum. The yield on the 10-year Treasury note is currently at the highest level since Oct. 2022.
“The yield will eventually settle back down in the mid-to-high threes if our forecast is right,” the analysts said. “A Fed pause is increasingly likely in September, which should help send rates down and prop up core bond returns,” they added.
The U.S. debt situation will unlikely cause the type of market volatility experienced in 2011, Buchbinder and Gillum said. That said, they believe stocks have moved a bit past what is justified by fundamentals in the short term and a 5-10% pullback is overdue.
Futures Today
Futures Performance On Tuesday
| Futures | Performance (+/-) |
| Nasdaq 100 | -0.67% |
| S&P 500 | -0.64% |
| Dow | -0.66% |
| R2K | -0.69% |
In premarket trading on Tuesday, the SPDR S&P 500 ETF Trust (NYSE:SPY) fell 0.62% to $445.33 and the Invesco QQQ ETF (NASDAQ:QQQ) retreated 0.56% to $368.27, according to Benzinga Pro data.
Upcoming Economic Data:
The Commerce Department is scheduled to release its retail sales report for July at 8:30 a.m. EDT. Economists expect a 0.4% month-over-month increase in the headline number, faster than the 0.2% increase in June. Core retail sales may have dipped 0.3% compared to a 0.2% increase in June.
The Labor Department is due to release its export and import price indices for July, also at 8:30 a.m. EDT. Export and import prices may have each increased 0.2% month-over-month. In June, export prices fell by 0.9% and import prices declined by 0.2%.
The New York Federal Reserve will release the results of its regional manufacturing survey for August at 8:30 a.m. EDT. The headline empire state manufacturing index is expected at -1 in August compared to 1.10 in July, suggesting a move back into contraction territory.
The Commerce Department is due to release its business inventories report for June at 10 a.m. EDT.
The National Association of Home Builders will release the results of its housing market survey at 10 a.m. EDT. The housing market index is expected to remain unchanged at 56.
Minneapolis Fed President Neel Kashhari, a Federal Open Market Committee member, is due to speak at 11 a.m. EDT.
See also: Best Strategies For Futures Trading
Stocks In Focus:
- Home Depot slipped in premarket trading after the company reported a second-quarter beat but comps fell and revenue declined from a year ago.
- Discover Financial Services (NYSE:DFS) shares declined over 5% after the company announced a leadership transition.
- Cardinal Health, Inc. (NYSE:CAH) and Tencent Music Entertainment Group (NYSE:TME) are among the companies due to release their quarterly results before the market opens.
- Notable among those reporting after the close include Agilent Technologies, Inc. (NYSE:A), Jack Henry& Associates, Inc. (NYSE:JKHY) and H&R Block, Inc. (NYSE:HRB).
Crude oil futures receded 1.09% to $81.61 in early European session on Tuesday after moving down 0.82% on Monday.
The benchmark 10-year Treasury note rose 0.051 percentage points to 4.233%.
Asian markets ended Tuesday’s session on a mixed note, with the Chinese and Hong Kong market declining amid the release of another string of weak economic data from China. Retail sales, industrial production, and fixed asset investment all came in weaker than expected in July.
The People’s Bank of China unexpectedly lowered the rate on 401 billion yuan ($55.25 billion) worth of one-year medium-term lending facility loans to some financial institutions by 15 basis points to 2.50% from 2.65% previously.
Meanwhile, the Japanese market advanced as traders reacted to better-than-expected second-quarter GDP. The Indian and South Korean markets remained closed for public holidays.
European stocks traded sharply lower in late-morning trading on Tuesday.
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