Signs of a weak holiday shopping season and apprehensions over the central bank trimming its economic stimulus plan dragged benchmarks into the red on Tuesday. Profit booking also turned out to be a deterrent for the markets. The Dow and S&P 500 extended their losing streak into a third day. These losses come after benchmarks recorded eight consecutive weeks of gains last week. This could lead to their first weekly losses since October.
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The Dow Jones Industrial Average (DJI) lost 0.6% to close the day at 15914.62. The S&P 500 declined 0.3% to finish yesterday’s trading session at 1795.15. The tech-laden Nasdaq Composite Index fell 0.2% to end at 4037.20. The fear-gauge CBOE Volatility Index (VIX) rose 2.3% to settle at 14.55. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 5.7 billion shares. Declining stocks outnumbered the advancers. For 60% shares that declined, only 38% advanced.
The retail sector was among the biggest losers of the day. Amazon.com, Inc. (NASDAQ:AMZN) was a big drag on the S&P 500 after its shares declined nearly 2% to $384.66. Moreover, Yum! Brands, Inc. (NYSE:YUM) lost 2.7% after stating that its KFC restaurants in China failed to post promising results.
On Monday, the National Retail Federation had reported that retail sales were down 2.7% to $57.4 billion during the Thanksgiving weekend. This occurred despite a 27% jump in Thanksgiving shoppers. The report also stated that the average spend of shoppers declined 6% to $407.02, largely due to lower prices.
What affected the mood on Tuesday were doubts over how well the holiday shopping season could turn out to be. Retail stocks were sold heavily, pushing down the retail sector and the broader markets. The SPDR S&P Retail (ETF) (NYSEARCA: XRT) lost 0.1%. Stocks such as PriceSmart, Inc. (NASDAQ:PSMT), SUPERVALU INC. (NYSE:SVU), Delhaize Group (NYSE:DEG), Ingles Markets, Incorporated (NASDAQ:IMKTA), and Whole Foods Market, Inc. (NASDAQ:WFM) declined 1.2%, 0.9%, 1.3%, 0.7%, and 0.1%, respectively.
The Dow was also affected by declines in E I Du Pont De Nemours And Co (NYSE:DD) and Pfizer Inc. (NYSE:PFE), which dropped 2.0% and 1.9%, respectively.
Investors’ speculation over the Federal Reserve’s next expected move related to the $85-billion bond buyback plan also dented sentiment. Some market watchers believe that the Fed may taper its stimulus program earlier than expected. These speculations cropped up following encouraging manufacturing and construction spending data published on Monday. Investors now eagerly await the key non-farm payrolls report that is scheduled for release on Friday.
The President of the San Francisco Federal Reserve Bank, John Williams said in an interview that the central bank should make efforts to convince investors that interest rates are going to stay low for a sufficiently long period even after the Fed ceases its stimulus program. He added that the central bank should provide an end date for the stimulus plan and a purchase total once it is sure about the economy’s strength.
Williams said: “My view would be that we would not be raising the funds rate even if the unemployment rate was below 6.5 percent as long as inflation continued to be low, for some time”. He added: “We need to be communicating more about the post-6.5-percent world now, because it could be with us much sooner than we expect, and I don’t want market participants to be surprised.” “We could be a little more concrete about what we are going to be looking for liftoff,” he said.
The utilities sector was the biggest gainer among the S&P 500 industry groups on Tuesday. The utilities SPDR (XLU) gained 0.5%. Stocks such as Duke Energy Corp (NYSE:DUK), Dominion Resources, Inc. (NYSE:D), NextEra Energy, Inc. (NYSE:NEE), The Southern Company (NYSE:SO), and Exelon Corporation (NYSE:EXC) increased 0.2%, 0.8%, 0.1%, 0.3%, and 1.9%, respectively.
The materials sector was the biggest loser among the S&P 500 industry groups on Tuesday. The Materials SPDR (XLB) lost 1.2%. Stocks such as Monsanto Company (NYSE:MON), The Dow Chemical Company (NYSE:DOW), Praxair, Inc. (NYSE:PX), and Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) decreased 1.5%, 3.2%, 0.4%, and 0.1%, respectively.
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