NEW YORK (BLOOMBERG, AFP) - Wal-Mart Stores cut its profit outlook due to increased spending on employee wages and e-commerce on Wednesday (Oct 14), sending shares in the world's largest retailer plunging.
Quarterly results from JPMorgan Chase also disappointed.
Wal-Mart tumbled the most in 27 years, while JPMorgan slid 2.5 per cent after cautioning that trading this quarter is off to a tepid start. Boeing sank 4 per cent to lead industrials lower. Commodity shares, pillars of the equity rebound from a third-quarter slump, rose as a measure of the US dollar hit a three-month low. Netflix fell in late trading after reporting weaker-than-estimated subscriber growth.
The Standard & Poor's 500 Index slipped 0.5 per cent to 1,994.24 at 4pm in New York, marking its first back-to-back declines in more than two weeks. The Dow Jones Industrial Average sank 157.14 points, or 0.9 per cent, to 16,924.75. Declines in Wal-Mart and Boeing together clipped about 85 points off the index. The Nasdaq Composite Index lost 0.3 per cent.
Consumer staples sagged on Wal-Mart's prediction of a decline in earnings next year, sending the discount retailer's shares down 10 per cent to the steepest decline since 1988. Grocer Kroger fell 3 per cent. Target and Best Buy slumped more than 3.5 per cent to pace declines among consumer discretionary shares.
Banks in the S&P 500 had their biggest drop since a sell-off on Sept 28, with JPMorgan and PNC Financial Services Group losing more than 2.5 per cent.
"Wal-Mart's sizable reset of expectations has shaken the overall market with general concern about both US and global growth," said Chad Morganlander, a money manager at Stifel, Nicolaus & Co. which oversees about US$170 billion (S$234.4 billion). "Investors are reconsidering their future forecasted growth rates for S&P earnings."
Wal-Mart's tumble sent equities lower after shares had fluctuated in early trading. The S&P 500 has lost momentum after its strongest week since December as investors look to earnings season for a better gauge on the outlook for corporate profits. The index has gained 3.9 per cent this month, and is up 6.8 per cent from an August sell-off closing low as it fights back from the worst quarter since 2011.
Netflixr eported third-quarter US subscriber growth that missed analysts' estimates as the introduction of new chip-based credit cards cut off some customers. Profit also fell short as the company sped up the recognition of some programming costs. Shares of the online video service, the top-performing stock in the S&P 500 this year, fell 7.4 per cent after hours.
Analysts project profits for S&P 500 members dropped 7.2 per cent in the third quarter. Goldman Sachs., Citigroup and UnitedHealth Group are among 16 companies in the index due to report results on Thursday.
Asian and European shares slipped on Wednesday after a report showed China's factory gate deflation extended a record stretch of declines while inflation moderated. Weak imports data out of China helped send the S&P 500 lower on Tuesday.
US data on Wednesday showed retail sales in September rose less than forecast as Americans increased their savings. Sluggish sales may raise concern about whether the staying power of consumer spending, which accounts for about 70 per cent of the economy, at a time overseas demand is also cooling. A separate report showed falling energy costs damped wholesale inflation, as the producer price index decreased the most since January.
"This Wal-Mart news is an opening shot when it comes to the growth story right now," said Mr Mark Kepner, an equity trader at Themis Trading. "This on top of the retail sales numbers which were fairly weak to begin with. Growth is a worry already, globally. Companies that are going to be reporting earnings or commenting on earnings with slowing growth are going to be hit pretty hard."
Federal Reserve officials last month left interest rates unchanged, opting to monitor the risk that China's slowdown could spill over to the US. After Wednesday's data from both China and the US, traders are now pricing in a 29 per cent chance the central bank raises rates this year, while odds of a March increase are about 49 per cent, down from 62 per cent on Monday.
Fed governor Daniel Tarullo told CNBC on Tuesday that he does not currently favour raising rates in 2015. That lines him up with fellow governor Lael Brainard, who made the case on Monday for patience, and diverges from the majority of Federal Open Market Committee members including chair Janet Yellen.
The central bank's Beige Book report on regional economic conditions released on Wednesday showed the economy grew modestly with little inflation pressure from mid-August to early October as a strong dollar weighed on manufacturing and tourism. Six of the 12 Fed districts called the expansion "modest", while three reported "moderate" growth.
"The probability of a global recession is rising as news out of China gets worse," said Mr Hugh Grieves, who runs the US Opportunities Fund at Miton Group in London. "As each data point comes out, positive or negative, sentiment lurches from one extreme to the other very quickly."