Stocks stall near records despite strong retail earnings, S&P 500 falls slightly

U.S. stocks fell on Wednesday as investors weighed a continuation of strong earnings reports from big-box retailers against lingering inflation concerns.

The Dow Jones Industrial Average fell 167 points, or 0.4%. The S&P 500 and the Nasdaq Composite each lost 0.3%. The Dow was dragged down by a 5% drop in Visa.

The markets are coming off a more positive day in which all three of the major averages moved upward after economic data and corporate earnings signaled U.S. consumers are ramping up spending despite rising prices. The S&P 500 and Nasdaq are still higher for the week, however, while the Dow is lagging.

“All of a sudden, sentiment has gotten very nervous, and this is being reflected in poor price action. The main drivers of the anxiety seem to be COVID and Washington,” according to Vital Knowledge’s Adam Crisafulli, who cited concerns about headline risk around the debt ceiling. “Throw on top of this ongoing questions about Fed leadership and some hot inflation numbers, and the result is a squishy market.”

Retail giant Target posted beats on the top and bottom lines, but its CEO noted rising costs may have an impact on the company going forward as it plans to absorb those costs rather than pass them onto the customer. Shares slid about 5%.

Home improvement giant Lowe’s saw shares rise slightly, however, after the company not only topped estimates from the Street but also raised its full-year sales forecast. And shares of TJX jumped 8% after the apparel and home retailer reported a quarterly earnings beat on the top and bottom lines as well as a same-store sales increase of 14% year-over-year.

“The consumer is spending and engaging in this economy at a level that is beating expectations,” said Keith Buchanan, portfolio manager at GLOBALT. “What’s hammered the market though is that for Target and Walmart, the two biggest retailers in the country from a brick-and-mortar standpoint, the costs of running those businesses are outpacing the strong consumer, so they’re missing on margins.”

Walmart on Tuesday reported better-than-expected results, though its shares declined.

The SPDR S&P Retail ETF lost 2% Wednesday, but retailers have been encouraged by same-store sales gains driven largely by higher traffic and solid digital growth amid pent-up demand from consumers over the summer.

Still, as investors allow themselves to enjoy the momentum of the year so far and a holiday shopping push into the end of the year, they’re grappling with how long beyond the holidays the good times can last and what 2022 will look like, according to Buchanan.

“This time last year we were looking at 2021 as the year of the rebound, the year of getting back to normal,” he said. “With 2021 ending on a strong note, there’s more optimism building that 2022 could be better than expected but what are the unintended consequences?” he added, noting the continuing uncertainty around high inflation and Fed monetary policy.

Elsewhere, Tesla climbed nearly 3% as the stock continued its rebound from a 15.4% loss last week, when CEO Elon Musk began his Tesla stock sell-off.

Microsoft saw its shares climb slightly to hit a new intraday record as investors rotated out of value stocks — financials and energy stocks were largely in the red — and bet on Big Tech going into the end of the year. Apple and Amazon were up 2% and 1%, respectively.

The tech-heavy Nasdaq is leading the major averages for the quarter, up about 10%.

On the downside, Visa shares slumped 5% after Amazon said it will stop accepting payments made with Visa credit cards issued in the U.K. starting next year. That change came shortly after Visa raised its interchange fees for transactions between the U.K. and European Union. Mastercard, which has also increased its U.K.-EU interchange fees, fell 4.5% with Visa.

Investors await more retail earnings Wednesday from Bath & Body Works and Victoria’s Secret. Other major companies reporting results include Cisco Systems and Nvidia.