The S&P 500 index, a benchmark for the U.S. stock market, fell below its 50-day moving average on Tuesday, a technical indicator that signals a potential change in the market trend. The index dropped 1.2% to close at 4,401.46, its lowest level since July 19. The Nasdaq Composite and the Dow Jones Industrial Average also declined 1% and 0.8%, respectively.
Market Selloff Triggered by Strong Retail Sales Data
The market selloff was triggered by a stronger-than-expected retail sales report, which showed that U.S. consumers increased their spending by 0.7% in July, defying expectations of a 0.4% decline. The report suggested that the U.S. economy remained resilient despite the surge in Covid-19 cases caused by the delta variant.
However, the robust retail sales data also raised concerns that the Federal Reserve might start tapering its bond-buying program sooner than expected, as inflation pressures persist. The Fed has been buying $120 billion worth of bonds per month to support the economic recovery and keep interest rates low.
The yield on the 10-year Treasury note, which moves inversely to bond prices, rose to 1.29% on Tuesday, up from 1.26% on Monday. Higher bond yields tend to weigh on stock valuations, especially for growth-oriented sectors such as technology and consumer discretionary.
Target and TJX Beat Earnings Estimates, but Lower Guidance
On the earnings front, Target and TJX Companies reported better-than-expected results for the second quarter, but both retailers lowered their guidance for the full year, citing uncertainty and supply chain challenges.
Target reported a 9.5% increase in comparable sales, driven by strong online and store traffic. The company earned $3.64 per share on revenue of $25 billion, beating analysts’ estimates of $3.49 per share on revenue of $24.2 billion. However, Target said it expects same-store sales to decline in the mid-single digits for the full year, as it faces tough comparisons with last year’s pandemic-driven surge.
TJX Companies, the parent company of TJ Maxx and Marshalls, reported a 20% increase in comparable sales, as consumers returned to its off-price stores. The company earned $0.64 per share on revenue of $12 billion, topping analysts’ estimates of $0.55 per share on revenue of $11 billion. However, TJX Companies said it expects earnings per share to be in the range of $0.47 to $0.52 for the third quarter, below analysts’ expectations of $0.60 per share.
Streaming Content Gains Market Share Over Broadcast TV
In other news, a report from Nielsen showed that streaming content accounted for nearly 39% of viewing time in the second quarter, up from 25% a year ago. Meanwhile, broadcast television’s share of viewing time fell to 20%, down from 31% a year ago.
The report highlighted the shift in consumer preferences and behavior amid the pandemic, as more people opted for on-demand content over traditional TV programming. The report also suggested that streaming platforms could benefit from both subscription and advertising revenue streams, as they offer more choices and flexibility to viewers.
