Dow drops over 300 points as stocks give back part of market bounce; Target sinks on results

US stock indexes opened lower Wednesday, a day after a bounce as investors reconsidered hawkish comments from Federal Reserve Chairman Jerome Powell.

How are stock indexes trading?
  • The Dow Jones Industrial Average DJIA
    lost 346 points, or 1.1%, to 32,230.

  • The S&P 500 SPX
    52 points, or 1.3%, declined to 4,036.

  • The Nasdaq Composite COMP
    traded 176.3 points, or 1.5% lower, to 11,826.

On Tuesday, the Dow industrials jumped 431.17 points, or 1.3%, for a third straight day of gains. The S&P 500 climbed 2%, while the Nasdaq Composite jumped 2.8%.

What’s driving the markets?

Investors were taking a fresh look at comments from Powell, who on Tuesday spoke of possible “pain” for Americans as the central bank moves resolutely to bring down inflation by raising interest rates. He was speaking at The Wall Street Journal’s Future of Everything event.

“Powell’s words didn’t hit the investor appetite immediately. Nasdaq rallied more than 2.5% yesterday, as the S&P 500 rebounded 2%. But mixed activity in US futures hint that appetite may not remain as strong in the coming sessions,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank, in a note to clients.

Stocks got a lift on Tuesday from better-than-expected US retail sales data, as well as optimism over China’s fight against COVID and signs of easing lockdowns. Michael O’Rourke, chief market strategist at JonesTrading, pointed to another possible factor behind Tuesday’s rise —- a Bloomberg report discussing possibly bullish stock options activity.

“Investors who have reduced exposure are adding upside protection hedges with index ETF call options,” O’Rourke told clients in a note. The put-to-call ratio for the $361 billion SPDR S&P 500 ETF Trust ETF (ticker SPY) recently hit a two-year low, based on open contracts, that report said.

A low put-to-call ratio is considered a bullish indicator for markets. He said the story also noted a 2008 high for outstanding call options for the $163 billion Invesco QQQ Trust Series 1 ETF QQQ.
A call option gives investors the right to buy an asset at a specific time, and an abundance means increased interest in buying.

But against a backdrop of Powell’s comments and disappointment from retailing giant Walmart WMT,
O’Rourke remains wary. “One can’t help to think that days like today are simply setting investors up for the next disappointment,” he said.

Shares of Target Corp. TGT
tumbled 26% after the retailer reported earnings that fell far short of expectations. Shares of Lowe’s Cos. LOW
fell on mixed results from the home-improvement retailer. TJX Cos. TJX
earnings are still ahead Wednesday and Cisco Systems Inc. CSCO
will report after the close.

Read: Fund managers’ cash pile is the biggest since 2001, says Bank of America

On US economic data, construction of new houses fell slightly in April for the third month in a row. US housing starts slipped 0.2% in April to an annual rate of 1.72 million units. US housing permits fell 3.2% in April to an annual rate of 1.82 million units.

Investors are also expecting comments from Philadelphia Fed President Patrick Harker at 4 pm Eastern Time.

Which companies are in focus?
  • Shares of AutoWeb Inc.
    AUTO
    were down 11% after plunging 65% Tuesday. The drop came after the company warned investors that it had “substantial doubt” in its ability to continue as a “going concern” given its troubled cash position.

  • Doximity Inc.
    DOCS
    shares fell 13% toward all-time lows, following an report that projected an unexpected revenue decline in the current quarter.

How are other assets trading?
  • The yield on the 10-year note BX:TMUBMUSD10Y
    rose 3.3 basis points to 3.004%. Yields and debt prices move in opposite directions.

  • Oil futures rose, with the US benchmark CL
    up 0.5% near $113 a barrel.

  • Gold futures GC00 fell 0.4% lower to $1,811.50 an ounce.

  • In European equities, the Stoxx Europe 600 XX:SXXP
    was down 0.4%, while London’s FTSE 100 UK:UKX
    lost 0.2%.

  • In Asia, the Shanghai Composite CN:SHCOMP
    ended 0.3% lower. Meanwhile, the Hang Seng Index HK:HSI
    finished higher by 0.2% and Japan’s Nikkei 225 JP:NIK
    rose 0.9%.

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