Market Snapshot: Dow rises for fifth day to highest close since April as retailer stocks fuel rally

What’s driving markets

U.S. equity indexes got off to a wobbly start, but soon swung higher as a rally in retailer stocks helped lift the Dow and S&P 500. Stocks exhibited a similar pattern on Monday, when all three U.S. benchmarks opened lower but managed to finish in the green.

Thanks to the retailer rally, the consumer staples sector was up 2.5%, marking the best performance among the S&P 500’s 11 sectors.

Read: This stock-market milestone indicates the S&P 500 could be as much as 16% higher one year from today

Some market watchers, however, cautioned that the market could be getting ahead of itself.

“We would caution investors against chasing this rally. We expect renewed market volatility ahead, and we continue to recommend positioning portfolios for resilience under various scenarios,” said Mark Haefele, chief investment officer at UBS Global Wealth Management, in a note.

“With inflation still high, we favor value stocks including global energy. And with the economic outlook uncertain, we think investors can consider defensive equity exposure via global healthcare or quality income stocks,” he wrote.

Shares of Walmart
WMT,
+6.12%
jumped 5.7% to lead Dow gainers after the discount retail behemoth reported fiscal second-quarter profit and revenue that beat expectations, and raised its full-year outlook. The results come just three weeks after the Dow component issued its second fiscal 2023 profit warning in two months, when the company said inflation had required more markdowns to clear inventory.

Meanwhile, shares of Home Depot Inc.
HD,
+4.92%,
another member of the blue-chip gauge, rose 5.3% after the home improvement retail giant reported fiscal second-quarter profit, record total sales and same-store sales that all rose above expectations and affirmed its full-year outlook.

The strong performance from the two retail giants helped lift shares of other retailers, including Target Corp.
TGT,
+6.37%
Lowe’s Cos.
LOW,
+4.10%
and Kohl’s Corp.
KSS,
+9.77%,
which will report earnings later this week. Their shares were up 6%, 4% and 9.6%, respectively. Meanwhile, Best Buy Co. Inc.
BBY,
+5.88%
was up 5.9% while Ross Stores Inc.
ROST,
+4.46%
was up 4.4%.

But the biggest gains were seen in shares of retailer “meme stocks” like Bed Bath & Beyond Inc.
BBBY,
+65.50%
which was up 57%, bringing its gains over the past two weeks to nearly 250%. Shares of Overstock.com Inc.
OSTK,
+14.15%
were up 14%.

While investors on Reddit forums like Wall Street Bets cheered the rally in Bed Bath & Beyond, B. Riley analyst Susan Anderson warned investors that they should sell, as the stock’s recent rally has led to “unrealistic” valuations.

Meanwhile, investors were looking ahead to an update on Fed thinking due Wednesday, when the central bank releases the minutes of its last monetary policy meeting.

Treasuries sold off on Tuesday, causing the yield curve to further invert as the 10-year Treasury yield is
TMUBMUSD10Y,
2.824%
up 3.9 basis points to 2.829%, while the two-year Treasury yield rose five basis points to 3.228%.

Economic data released Tuesday showed U.S. housing starts fell 9.6% in July, while building permits were down1.3%.

However, U.S. industrial production rose 0.6% in July,according to data from the Federal Reserve. The gain topped Wall Street expectations of a 0.3% increase, according to a survey by The Wall Street Journal.

Capacity utilization rebounded to 80.3% in July from 79.9% in the prior month. The capacity utilization rate reflects the limits to operating the nation’s factories, mines and utilities. Economists had forecast a 80.2% rate.

Companies in focus

World Wrestling Entertainment Inc.
WWE,
+2.30%
delivered second-quarter results that beat expectations and said it wrapped up a probe of former chief executive Vince McMahon. A special committee identified $19.6 million in unrecorded expenses, which will be paid by McMahon. WWE said it’s revising its previously issued financial statements to record the unrecorded expenses for the years ended 2019, 2020 and 2021, as well as the first quarter of 2021 and 2022. Shares rose 1.6%.

Apple Inc.
AAPL,
+0.10%
laid off 100 contract workers in charge of recruiting, according to Bloomberg. Apple shares fell 0.2%.

Royal Caribbean Cruises Ltd.
RCL,
+4.10%
was up 4% even after the company refinanced with a new batch of junk bonds yielding more than 11%.

How are other assets faring

U.S. WTI oil futures
CL.1,
-3.69%
dropped 3.3% to trade below $87 a barrel.

The ICE U.S. Dollar index
DXY,
-0.07%
was virtually unchanged.

Gold
GC00,
-0.38%
was down 0.5% below $1,790 an ounce.

Bitcoin
BTCUSD,
-0.77%
fell 1.6% to trade below $23,800.

The Stoxx Europe 600
SXXP,
+0.16%
rose 0.2%, while London’s FTSE 100
UKX,
+0.36%
gained 0.4%.

Asian stocks saw a mixed finish, with the Shanghai Composite
SHCOMP,
+0.05%
edging up 0.1%, while the Hang Seng Index
HSI,
-1.05%
fell 1% in Hong Kong and Japan’s Nikkei 225
NIK,
-0.01%
saw a fractional decline.

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