U.S. stocks are fluctuating on Thursday following mixed earnings reports from major companies and signals that the economy might be slowing down.
In early trading, the S&P 500 was down 0.3% and has generally been declining since hitting a record last week. The Dow Jones Industrial Average dropped 300 points, or 0.8%, and the Nasdaq composite fell 0.4%.
Salesforce was a significant drag on the Dow, plunging 18.1%. The customer relationship management company reported lower-than-expected revenue for the latest quarter, despite surpassing profit estimates. Its revenue forecasts for the current quarter and fiscal year also fell short of Wall Street’s expectations.
Kohl’s saw an even steeper drop, falling 25.8%, after it unexpectedly reported a loss for the latest quarter. Analysts had anticipated a profit. The retailer cited a decrease in sales from the previous year as customers cut back on clearance items, prompting the company to lower its sales and financial targets for the year.
Positive earnings reports from other companies helped support the market. Best Buy exceeded profit forecasts, despite falling short on sales, boosting its stock by 11.3%. Foot Locker soared 25.4% after reporting better-than-expected profits, even though sales did not meet analysts’ expectations.
Stocks received additional support from easing Treasury yields. This provided relief after yields had risen earlier in the week due to concerns over weak demand for Treasury bonds following several U.S. government auctions. The rising yields had pressured various investments.
Yields declined on Thursday after reports suggested the U.S. economy isn’t as robust as expected. Wall Street hopes for a balanced economic cooling that allows the Federal Reserve to control high inflation without triggering a severe recession.
One report indicated that more U.S. workers applied for unemployment benefits last week than anticipated, although layoffs remain low compared to historical levels. Another report suggested that the overall growth of the U.S. economy might not have been as strong as initially thought.
A slowing economy could boost the Federal Reserve’s confidence that inflation is heading back towards its 2% target sustainably. This could lead to a reduction in the federal funds rate, which is currently at its highest level in over two decades.
The yield on the 10-year Treasury fell to 4.56% from 4.62% late Wednesday, while the two-year yield, which more closely reflects Fed expectations, dropped to 4.93% from 4.98%.
The key data point to watch is the U.S. government’s monthly update on a preferred inflation gauge by the Federal Reserve, due on Friday. According to Chris Larkin, managing director of trading and investing at E-Trade from Morgan Stanley, this report could dominate market sentiment until next Friday’s jobs report.
In the meantime, the end of the earnings reporting season might influence market movements. So far, profits for the beginning of 2024 have generally exceeded expectations.
Beyond Salesforce, other tech-related companies received positive market responses to their earnings reports.
C3.ai surged 13% after exceeding expectations for both profit and revenue in the latest quarter. HP rose 10.4% after narrowly beating earnings forecasts.
Retailers, which typically report at the end of each earnings season, are under close scrutiny due to concerns about weakening consumer spending, a crucial driver of the U.S. economy. High inflation continues to affect lower-income households.
Dollar General dipped 0.8% despite surpassing profit forecasts and slightly beating revenue expectations. The retailer, serving many lower-income customers, reported strong traffic growth at its stores during the quarter.
Build-A-Bear Workshop plummeted 12.1% after reporting larger-than-expected declines in revenue and earnings for the latest quarter. The company cited a “weaker spending environment” that negatively impacted its business.
In international markets, indexes rose modestly in much of Europe but struggled in Asia. Japan’s Nikkei 225 fell 1.3%, South Korea’s Kospi dropped 1.6%, and Hong Kong’s Hang Seng declined 1.3%.
Featured Image: Freepik @ wirestock
