Benchmarks slumped yesterday after retail giant Wal-Mart posted weaker than expected results. Investor sentiment was dampened further after Cisco announced 4,000 employees would be laid off. Additionally, the number of Americans applying for unemployment benefits also decreased. This implies that the bond purchase program might be ended next month. All the top ten S&P 500 industry groups suffered losses. Consumer discretionary stocks suffered the most, for the second consecutive day.
For a look at the issues currently facing the markets, make sure to read today’s Ahead of Wall Street article.
The Dow Jones Industrial Average (DJI) lost 1.5% to close the day at 15,112.19. The S&P 500 dropped 1.4% to finish yesterday’s trading session at 1,661.32. The tech-laden Nasdaq Composite Index slipped 1.7% to end at 3,606.12. The fear-gauge CBOE Volatility Index (VIX) increased 13.0% to settle at 14.73. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 6.4 billion shares, marginally above 2013’s average of 6.36 billion shares. Declining stocks outnumbered the advancers. For the 81% that declined, only 18% advanced.
Wal-Mart released results below than the Street’s estimates. Shares of Wal-Mart Stores, Inc. (NYSE:WMT) dropped 2.6% after its earnings came in at $1.24 per share, compared to estimates of $1.25. Revenues of the company declined to $116.2 million, compared to estimates $118.5 million. Same-store sales declined 0.3% compared to analysts’ estimates of a gain of 1%. The company also said it was likely to face a “challenging sales and operating environment" this year. Wal-Mart also lowered its revenue guidance to between 2% and 3%, compared to the earlier range of 5% to 6%. Profit guidance of the company has also been lowered by 10 cents, to the range of $5.10 and $5.40 per share.
Another factor which spooked investors was the surprise decision taken by Cisco Systems, Inc. (NASDAQ:CSCO). Shares of the company declined 7.2% after the company announced plans to lay off 4,000 employees, or nearly 5% of its workforce. This decision was taken despite the fact that revenues exceeded the Street’s estimates.
A bunch of domestic reports were also released yesterday. According to the U.S. Department of Labor, the number of Americans applying for unemployed benefits dropped to 320,000 from last week’s figure of 335,000. This was also below the consensus estimate of 330,000. On a 4-week moving average basis, initial claims data stood 332,000, down 4,000 from last week’s figure of 336,000. Every decrease in initial claims numbers reaffirms the prospect of the Fed ending the $85 billion bond purchase program soon.
According to data released by the Federal Reserve Board, industrial production for the month of July remained flat, compared to an increase of 0.2% in June. It was also below the consensus estimate of 0.3%. Among its constituents, manufacturing production slipped 0.1%. The output of mines increased for the fourth month in a row, by 2.1% while production of utilities dropped 2.1% for the straight fourth month.
Another report released by the U.S. Department of Labor showed that the Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2% for July, in line with the consensus estimate. The increase in the CPI-U is attributable to an increase in prices of shelter, apparel, gasoline, and food. However, despite an increase in gasoline prices, the energy index grew only 0.2%. Apart from these items, price increases was also witnessed in items like tobacco, medical care and new vehicles. However, the indexes of airline fares, used cars and trucks slipped for the month of July.
A series of consumer sentiment surveys for the month of August were released yesterday. The Empire State Manufacturing Survey released by the Federal Reserve Bank of New York indicates an improvement in the general business conditions in New York. The index came in at 8.2, marginally higher than the previous month, but lower than the consensus estimate of 9.5. The new orders index and the shipments index slipped to 0.3 and 1.5, respectively. However, labor conditions improved to 20.5.
According to the Business Outlook survey released by the Federal Reserve Bank of Philadelphia, manufacturing conditions came in at 9.3, below than consensus estimate of 17.5. New orders index increased for the third month in a row at 5.3 while shipments index slipped into negative territory. The employment index dropped to 3.5.
Consumer discretionary stocks were the biggest losers among the top ten S&P 500 industry groups. The Consumer Discretionary SPDR (XLY) dropped 1.8%. Stocks such as the Home Depot, Inc. (NYSE:HD), CBS Corporation (NYSE:CBS), Time Warner Inc (NYSE:TWX), Comcast Corporation (NASDAQ:CMCSA) and Time Warner Cable Inc (NYSE:TWC) dropped 3.0%, 2.0%, 1.8%, 2.0% and 2.3%, respectively.