NASDAQ 100, Dow Jones, S&P 500: Stocks Slide on Home Depot’s Disappointing Forecast, Debt Ceiling Worries

Highlights

• Stocks decline as Home Depot’s forecast disappoints.
• Investors shift focus to critical debt ceiling meeting.
• Concerns rise over the risk of a failure to reach a debt ceiling agreement.

Overview

Stocks took a downward turn on Tuesday. Investors reacted to Home Depot’s disappointing forecast. They also shifted their focus towards a critical meeting between congressional leaders and President Joe Biden regarding the U.S. debt ceiling.

The Dow Jones Industrial Average dropped by 127 points, representing a 0.4% decline. Similarly, the S&P 500 and Nasdaq Composite both experienced a 0.2% decrease.

Home Depot’s Decline Sparks Investor Concerns

Home Depot, a constituent of the Dow, experienced a decline of 3.3%. This followed the release of disappointing quarterly revenue. And a downward revision of its full-year guidance. The company’s shares fell over 4% in premarket trading after the publication of its latest quarterly figures.

Despite exceeding the Refinitiv forecast for earnings per share ($3.82 compared to $3.80), Home Depot reported a lower-than-expected revenue of $37.26 billion for the fiscal first quarter, while the consensus forecast was $38.28 billion.

Moreover, Home Depot adjusted its fiscal year guidance downward due to decreased consumer spending on high-priced items and delayed large-scale projects.

April Retail Sales Fall Short

In April, retail sales showed a modest increase of 0.4%, falling short of the anticipated 0.8% growth predicted by economists surveyed by Dow Jones.

The Commerce Department reported that the headline number was impacted by a decline in sales at gas stations. The 0.4% rise in spending for the month did not outpace inflation. This is evident from the 0.4% increase in the consumer price index. When excluding auto-related components, sales still rose by 0.4%, aligning with expectations.

However, a significant 0.8% decrease in gas station sales and a 3.3% decline in sporting goods, musical instrument, and book stores held back the overall sales figure. On the positive side, miscellaneous stores and online sales experienced notable gains.

Investors Await Debt Ceiling Progress Amid Dire Default Warning

Investors are eagerly awaiting progress on a deal to increase the debt ceiling before June 1, which is the earliest date the Treasury Department has identified as a potential default on U.S. debt obligations. Treasury Secretary Janet Yellen recently warned of the dire consequences if a deal is not reached, referring to it as an “economic catastrophe.” On Monday, Yellen reiterated that the U.S. faces the risk of default as early as June 1, known as the X date, if an agreement is not reached between the White House and Congress.

Yellen emphasized the negative impact of waiting until the last minute to suspend or increase the debt limit, such as harming business and consumer confidence, increasing short-term borrowing costs for taxpayers, and potentially affecting the United States’ credit rating. She also noted that borrowing costs for Treasury securities maturing in early June have already increased significantly.

President Biden conveyed a more optimistic stance on the ongoing negotiations over the weekend. However, House Speaker Kevin McCarthy, a Republican from California, emphasized the significant obstacles that still require overcoming. Biden has consistently maintained that raising the debt ceiling is non-negotiable. On the other hand, McCarthy has advocated for discussions to link raising the debt ceiling with spending cuts.

Debt Ceiling Risk Worries Stock Market

There are concerns among some that the stock market may not be fully considering the risk of a failure by Democrats and Republicans to reach an agreement on raising the debt ceiling, which could have catastrophic consequences for the U.S. economy.