Market Snapshot: Dow, S&P 500 end lower as investors hit pause on stock- market rally, Target results disappoint

What drove markets

U.S. stocks hit pause on their recent rally after U.S. retail sales jumped 1.3% in October, suggesting consumers are still spending a lot of money despite the Federal Reserve’s efforts to slow the economy.

Stocks weakened after retailer Target Inc.
TGT,
-13.14%
delivered a poorly-received earnings report, which sent its shares tumbling and weighed on other big-box retailers like Best Buy Co.
BBY,
-8.57%
Investors were taken aback particularly because Walmart Inc.’s
WMT,
+0.72%
earnings a day earlier painted a much more robust picture of the state of the U.S. consumer.

“Target’s signal that a consumer spending recession was unfolding heading into the all-important holiday shopping season came as a shock to some investors after yesterday Walmart reassured trends were ok,” said Jeffrey Kleintop, chief global investment strategist at Charles Schwab.

U.S. stocks came into Wednesday’s session up six of the previous eight trading days, bolstered by last week’s softer-than-expected October consumer prices report and Tuesday’s weaker-than-forecast producer-price data, both of which raised hopes that the Fed might be less aggressive about raising interest rates than previously feared.

Katie Stockton, a market analyst at Fairlead Strategies, said stocks were ripe for a brief pullback, although technical factors suggest the major U.S. indexes will resume their uptrend as the holiday season in the U.S. gets under way.

Others on Wall Street worry investors have once again gotten too optimistic about hopes for an eventual pause of Fed interest rate hikes, and potentially have been concerned too little about U.S. recession risks.

See: ‘We’ve only just begun to see the layoffs and squeezes on profit margins,’ warns Wells Fargo strategist

In the Treasury market, the 10-year note yield fell 10.5 basis points at 3.693%, while the 2-year Treasury yield
TMUBMUSD02Y,
4.357%,
which is particularly sensitive to monetary policy, up marginally at 4.363%.

Several senior Fed officials also spoke on Wednesday, including New York Fed President John Williams who said the near $24 trillion Treasury market must be kept functioning smoothly, or risk turmoil that would undermine monetary policy, while speaking at an industry conference he hosted.

San Francisco Federal Reserve President Mary Daly said Wednesday that the central bank’s benchmark interest rate may have to rise above 5% to start to put downward pressure on inflation, with somewhere between 4.75% and 5.25% looking like a reasonable range. Fed Governor Christopher Waller later in the session said that recent economic data should allow the central bank to consider dialing back the pace of its interest rate hikes at its next meeting in December.

In other economic data, October industrial production shrank 0.1% according to data released by the Federal Reserve, disappointing hopes for a 0.1% gain, according to a survey by The Wall Street Journal. The National Association of Home Builders’ monthly confidence index fell 5 points to 33 in November, the trade group said on Wednesday.

Geopolitical issues remained in focus Wednesday, with European indexes closing lower after a missile that cross into Poland on Tuesday sparked concerns of a potential escalation of Moscow’s war in Ukraine. The STOXX Europe 600
SXXP,
-0.98%
finished down 1%. Washington said the missile was an errant Ukrainian attempt to destroy incoming Russian projectiles.

Companies in focus

Tesla Inc.
TSLA,
-3.86%
shared shed 3.8% Wednesday as CEO Elon Musk testified to defend himself in a shareholder lawsuit that could challenge his compensation package, pegged as potentially worth $55 billion, according to the AP.

Carnival Corp.
CCL,
-13.71%
closed down 13.8% after announcing plans to issue more debt.

Lowe’s Inc. 
LOW,
+3.01%,
the home improvement retailer, reported third-quarter earnings on Wednesday that beat analysts’ expectations, with revenue up compared with the same period last year. Shares rose 3%.

Shares of Advance Auto Parts Inc.
AAP,
-15.06%
plunged 15% after the specialty retailer missed Wall Street expectations for its quarterly earnings as it sold more of its cheaper in-house brands than national brands.

—Frances Yue and Jamie Chisholm contributed reporting