Stocks Tumble on Worries about Weak Consumer Spending

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Stocks fell for the first time in four days Wednesday as disappointing results from Macy’s Inc. to Walt Disney Co. heightened concern that American consumers remain hesitant to bolster spending. A rally in crude lifted commodity shares. 

The misses from Disney and Macy’s sent consumer-discretionary shares tumbling by the most in three months as investors await Friday’s government report on retail sales. Fossil Group Inc. also reported weak results, with earnings from J.C. Penney Co. and Nordstrom Inc. on tap tonight. Commodities producers erased losses with the price of crude following an inventory report.

The S&P 500 fell 0.8 percent to 2,067. The Dow Jones Industrial Average sank 190 points, with Disney contributing nearly half of the losses. The Nasdaq Composite Index shed 0.75 percent.

“Given that equities are about 3 percent away from all-time highs in absence of earnings growth, equities are priced to perfection within a thin margin of error,” said Terry Sandven, who helps oversee $126 billion as chief equity strategist at U.S. Bank Wealth Management in Minneapolis. “Yesterday’s rally was somewhat unexpected and not the trend that we’re likely to see over the next few weeks. By any measure, equities are due for a pullback and will trend sideways over the next year.”

After a rally Tuesday sparked by a rebound in commodities prices, results from Disney and Macy’s reminded investors that further equity gains remain vulnerable to stumbling corporate profits. Other media, apparel and retail companies were the hardest hit in Wednesday’s early trading. Behind Disney, Wal-Mart Stores Inc. fell the most in the Dow, losing 3.5 percent.

Stocks had posted three consecutive days of gains for the first time since the S&P 500 reached a four-month high on April 20, with investors betting the Federal Reserve will be all the more deliberate in tightening monetary policy after fewer-than-forecast jobs were added last month. Traders are now pricing in only a 4 percent chance of higher interest rates in June, compared with 22 percent just two weeks ago. The first month with even odds of an increase has been pushed back to February 2017.

The main U.S. equity benchmark jumped as much as 15 percent from its February low to come last month within 1.4 percent of the record set a year ago, as investors assessed how recovering oil prices and a drop in the dollar will help limit a contraction in corporate earnings. The index has since struggled to extend gains amid lukewarm economic data and lackluster results from giants such as Apple Inc. and Microsoft Corp.

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Source: Bloomberg | Sofia Horta e Costa and Dani Burger