Stocks Are Slipping as Investors Digest Latest Economic Data

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U.S. stocks were lower on Tuesday, as investors digested the latest economic news and prepared for a key announcement on rates and fiscal policy from the Federal Reserve on Wednesday.

Government figures released Tuesday showed that U.S. retail sales fell 1.3% in May, compared with the decline of 0.6% economists expected. The producer-price index, an inflation indicator, rose 0.7%, excluding food and energy, while economists had expected an increase of 0.5%.

By noon, the

Dow Jones Industrial Average

fell 125 points, or 0.4%, while the

S&P 500

slipped 0.2%, and the

Nasdaq Composite

fell 0.6%

In Asia, Tokyo’s

Nikkei 225

rose 1%, while Hong Kong’s

Hang Seng

slipped 0.7%. The

Shanghai Composite

was 0.9% lower. The

FTSE 100

in London rose 0.4%, opening at the highest level since February 2020, as the pan-European

Stoxx 600

was 0.1% higher and trading at fresh records. The

CAC 40

in Paris lifted 0.4% and Frankfurt’s

DAX

climbed 0.4%.

The retail sales result may not have been quite as disappointing as the headline number would imply. Excluding a large decline in auto sales month-over-month—due to a semiconductor shortage—retail sales declined just 0.7%, according to Morgan Stanley data. 

Still, stocks were challenged partly because investors are awaiting the key Fed release Wednesday. “We’re all on pins and needles to see if the Fed is tapering,” says
Louis Navellier,
 founder of asset-management firm Navellier & Associates. 

The Fed could signal that it is close to reducing the size of its bond purchasing program. That would lower bond prices and lift their yields, a negative for stock valuations.

“With the Federal Reserve set to announce its latest decision tomorrow, markets appear to be taking the line of least resistance, which is a slow incremental move higher with a ‘two steps forward and one step back’ approach, over the past week or so,” said Michael Hewson, an analyst at CMC Markets.

Lukman Otunuga,
an analyst at FXTM, noted that “although the Fed is widely expected to leave interest rates and policy measures unchanged, all eyes will be on the statement language, updated economic projections and Chair
Jerome Powell’s
postmeeting press conference.”

“The Fed has managed to persuade markets that the current jump in inflation is transitory. The question is: for how long will they keep this mantra?”

Airbus

stock fell 0.4% in London trading, while shares in

Boeing

(BA) rose 0.8%, after the settlement of a 17-year trade dispute between the European Union and U.S. over state aid to the aircraft manufacturers. Both companies, rivals, are jewels in the manufacturing crowns of the U.S. and Europe, and the long-running trade spat includes a cumulative $11.5 billion in tariffs on exports.

H&M

stock fell 2.3% in London, after blowout second-quarter sales at the fashion retail giant fell short of expectations. Sales in local currencies jumped 75% from March to the end of May compared with the same period in the year prior, to 46.51 billion Swedish kroner, which fell short of analysts’ expectations of SEK 48.09 billion.

Shares in

EDF,

the French multinational energy group, fell as much as 2% before settling 1.2% lower, after reports that one of its nuclear power plants in China could be experiencing a leak. EDF, which jointly owns the plant with the China General Nuclear Power Group, said on Monday that it was dealing with “performance” issues at the facility but that operations remained within safety guidelines.

Olin Corp.

 (OLN) stock gained 0.8% after getting upgraded to Buy from Neutral at UBS.  

Spirit Airlines

 (SAVE) stock initially rose, then fell 0.35% after getting upgraded to Buy from Neutral at Citigroup. 

Welltower

 (WELL) stock gained 0.9% after getting upgraded to Strong Buy from Market Perform at Raymond James. 

Fastenal

 (FAST) stock dropped 1.6% after getting downgraded to Underweight from Equal Weight at Morgan Stanley. 

Principal Financial Group

 (PFG) stock fell 0.3% after getting downgraded to Neutral from Overweight at Piper Sandler. 

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com