Stocks Suffered Their Worst Day of the Year on Tuesday

KKM Financial CEO Jeff Kilburg thinks that investors should still remain optimistic despite the ongoing market downturn.

Kilburg believes that the uptick in the bond market is attributable to a “lag effect” from higher Fed rates rather than an indication of a bear market, adding that the 10-year note is “a tremendous buying opportunity” with the yield this high.

“The market seems [composed] despite the fact that it’s going lower at the current moment — this is just the way some investors got ahead of themselves,” Kilburg said. “There is some emotion in the market, but this downdraft is going to be bought. It’s still buoyant.”

— Hakyung Kim

Markets have started to listen to the Federal Reserve’s message, LPL Financial said on Tuesday. 

Strategists Jeffrey Buchbinder and Quincy Krosby wrote that recent economic indicators, including the Consumer Price Index and retail sales, show that inflation is still inching higher. 

“The fed funds futures market quickly adjusted probabilities as well, pricing in a potential third interest rate hike at the Fed’s June meeting,” the strategists wrote. 

“What has caught the market’s attention, however, is the slight probability for a 50 basis point rate hike at the March meeting has been climbing higher, as two non-voting members of the Federal Open Market Committee (FOMC), Loretta Mester and James Bullard, made comments suggesting a 50 basis point rate hike in March may be necessary to help tackle inflation. Markets are listening,” they added. 

Investors will be looking toward important economic data this week that will give insight into how the Fed will continue with its monetary policy. February’s GDP growth rate will be released on Thursday, as well as the Personal Consumption Expenditures Price Index (PCE) on Friday.

— Hakyung Kim

The outlook for market bulls has grown cloudier in recent weeks and stocks could be due for a pullback, eToro U.S. investment analyst Callie Cox said in a blog post on Tuesday afternoon.

“Stocks and crypto are starting to look shaky, and the conditions that made markets extra susceptible to ‘less bad’ news are disappearing,” Cox said.

Cox pointed to the recent rebound in Treasury yields as one reason that the eToro team is growing more cautious on stocks.

“The 10-year yield has rebounded from 3.4% back to 3.9% in a matter of weeks, yet people are still focusing on growth and unprofitable stocks. In fact, 44 of the Russell 3000’s 50 best-performing stocks this year didn’t generate any profits over the past 12 months. That’s strange, considering that higher bond yields should entice investors to focus on profits and cash flows,” Cox said.

“We don’t expect the Fed to cut rates or the 10-year yield to fall precipitously any time soon, so there’s a bit of cognitive dissonance there,” she added.

— Jesse Pound

U.S.-listed Chinese technology stocks plummeted on Tuesday.

The pullback in shares came amid news that e-commerce company JD.com is reportedly launching a subsidy program to counter its rival Pinduoduo. Shares of both stocks shed more than 11% and 9%, respectively, during afternoon trading.

Others China tech stocks stumbled, including Alibaba, last down 5%. The KraneShares CSI China Internet ETF was last down more than 3%.

— Samantha Subin

Cathie Wood’s Ark Innovation ETF (ARKK) fell more than 5% on Tuesday as investors sold growth stocks in the face of rising interest rates.

Roku, which was the third largest holding in the fund at the end of last week, was down more than 8% in afternoon trading. Top holdings Tesla and Zoom Video were down more than 3% each.

The fund is still up about 26% year to date.

— Jesse Pound

After being gutted last year, global tech stocks have started to recover — but the rally won’t continue, according to UBS.

The MSCI World IT Index is up 12.6% so far in 2023, after losing 31.3% in 2022, analyst Vincent Heaney wrote in a note Monday. He’s maintaining a near-term defensive stance on the sector.

“Global tech sector earnings growth is set to decelerate further, with flat growth likely in 2023 amid lukewarm consumer demand and a deteriorating enterprise outlook,” Heaney said. “We remain least preferred on the tech sector overall, especially US.”

In the U.S. large-cap growth stocks like Nvidia, Meta and Amazon all saw a run up at the start of the year. Nvidia and Meta are up more than 40% year to date, while Amazon has gained nearly 13%. The tech-heavy Nasdaq Composite is up about 10% so far this year.

— Michelle Fox

The market is on a different path now from last fall, according to Goldman Sachs. 

“Back in the fall, the concern was that too-high rates are going to induce a US recession. But today, the concern has been flipped on its head: too strong growth is going to keep rates high,” analyst Chris Hussey wrote in a Tuesday note. 

“Rates may be on a round trip to 4%, but they are traveling on a very different road than the one they were on the last time we saw 4% 10-year yields,” the analyst continued. “Most companies would much rather operate in an environment of sustained higher rates and sustained high growth than one of high rates and declining activity.”

The firm believes that the economic impact of the Federal Reserve’s rate hikes is “largely behind us.”

“That leaves us with only the impact from the latest hikes and the 75bp of additional hikes we expect this year — suggesting that the economy may remain on firm ground even as the Fed tweaks rates higher this year,” added Hussey.

— Hakyung Kim

Microsoft’s broad access of data should help it keep its early lead in artificial intelligence, according to BMO Capital Markets.

Analyst Keith Bachman said in a note to clients on Tuesday that a recent call with an AI expert reinforced the idea that Microsoft is in strong position in the emerging industry.

“We think MSFT’s reach, scale, and access to data will help MSFT to develop and train AI models, and thus generate competitive differentiation,” the note said.

Bachman did caution that enterprise use cases for AI could take longer to develop, due in part to Microsoft not owning all of the customer data that flows through its Azure cloud arm. Additionally, rival Alphabet also has access to a lot of data on which to train AI.

Shares of Microsoft were down 2% in afternoon trading.

— Jesse Pound

The Dow Jones Industrial Average is in danger of closing below its 50-day moving average on Tuesday.

The index slipped below the 50-day moving average during midday trading on Tuesday. It also fell below that level several times in February, such as in Feb. 17, Feb. 10 and Feb. 7.

However, the major index hasn’t closed below the 50-day moving average since Jan. 20.

A close below 33,624.57 level would breach the 50-day MA on a closing basis.

— Chris Hayes, Sarah Min

A slower recovery in supply chain and logistics will weigh on Carvana‘s earnings this year and next, according to Raymond James.

The Wall Street firm lowered its estimated 2023 and 2024 adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) on Tuesday. Analyst Mitch Ingles is now expecting a loss of $485 million, versus his previous estimate of a $419 million loss for 2023. He anticipates a loss of $127 million for 2024, compared to his previous estimate of a $48 million loss.

“Accordingly, we now do not expect adjusted EBITDA to turn positive until 2025E (forecasted at $390M) suggesting further cash burn concerns,” Ingles wrote in a note to clients. He reiterated his market perform rating on the stock.

Carvana is expected to report fourth-quarter earnings on Thursday. Shares lost 98% in 2022 but are up about 120% so far this year.

— Michelle Fox

These stocks are among those making the biggest moves in midday trading:

• Home Depot — Shares of the home improvement retailer dropped 6% after the company posted a quarterly revenue miss for the first time since 2019. Home Depot also provided a muted outlook for fiscal 2023 and expects sales growth to be approximately flat due to a tougher consumer backdrop and a pivot away from goods toward services.
• HSBC Holdings — The bank stock rallied nearly 5% after reporting a fourth-quarter pre-tax profit of $5.2 billion, topping expectations. HSBC said the results reflect lower reported operating expenses and strong reported revenue growth.
• DocuSign — Shares slid 9.3% during midday trading after UBS downgraded the company to sell from neutral, citing concerns about dwindling growth in fiscal year 2024.
• Nordson Corp. — Shares of the adhesive manufacturing company fell 13% after it missed fiscal first-quarter expectations. Nordson reported sales of $610.5 million in the period and earnings per share of $1.95, excluding items.

Click here to see more stocks making midday moves.

— Pia Singh

The recent momentum shift in the S&P 500 has led the broader market index to break its recent upward trend, BTIG chart analyst Jonathan Krinsky noted.

“After a few weeks of chopping around, the SPX looks to have broken its short-term uptrend just as momentum has begun to roll over, similar to breaks we saw in April, August, and December of 2022,” he said in a Monday note.

The S&P 500 has been under pressure in recent weeks, as traders fret over the prospects of higher Federal Reserve rates and persistent inflation. This comes after a strong start to the year for stocks that saw the S&P 500 rally more than 6% in January.

— Fred Imbert

JPMorgan’s Mislav Matejka warned that the this quarter could be the high point for stocks this year, as warning signs continue to pile up for the market.

The recent stock rebound “is drawing investors in. Many, who were convinced last summer that any rally should be seen as just a bear-market rally, are now nurturing increasing optimism that recession can be avoided altogether,” he said.

But, “we do not expect that there will be a fundamental confirmation for the next leg higher, and see rally fading as we move through this quarter, with Q1 possibly marking the high for the year,” he added.

— Fred Imbert

Wall Street has yet to see hit the low, says Canaccord Genuity, saying that a recession is the “forward-looking bull story.”

“The higher the short-term yields go, the more likely the U.S. economy goes into recession over coming quarters, which would reinforce that the market has yet to make ‘the low,'” analyst Tony Dwyer wrote on Tuesday.

Dwyer added, “In our view, we need monetary policy to be aggressively accommodative to warrant a sharp drop in short-term interest rates, a steepening of the various yield curves, improved LEIs, and jump in real liquidity. Unfortunately, a soft economic landing doesn’t accomplish that because it doesn’t fix the current inflation problem – only a recession will.”

— Hakyung Kim

U.S. Treasury yields moved past Friday’s highs, hitting their highest levels since November.

The 2-year rate, which is the most sensitive to Fed policy changes, hit a high of 4.725% — a level not seen since Nov. 8, when it reached 4.741%.

The benchmark 10-year rate, meanwhile, rose as high as 3.951%. That’s its highest level going back to Nov. 10, when it climbed to 4.117%.

At 10:22 a.m. ET, the yield on the 2-year Treasury was up 8 basis points at 4.705%.The 5-year Treasury and 10-year Treasury also reached 3-month highs, with yields at 4.142% and 3.927%, respectively.

— Hakyung Kim

U.S. existing home sales fell 0.7% to a seasonally adjusted 4 million units in January, reaching their lowest level in more than 12 years. They also declined for a 12th consecutive month.

However, “Home sales are bottoming out,” said National Association of Realtors chief economist Lawrence Yun. “Prices vary depending on a market’s affordability, with lower-priced regions witnessing modest growth and more expensive regions experiencing declines.”

— Fred Imbert

Any margin clarity from management could be a good thing for skittish investors when Target reports earnings, Citi says.

“Big picture, we believe there is GM recapture oppty in F23 but risk to sales against tough multi-year comparisons,” wrote analyst Paul Lejuez in a Tuesday note to clients, calling the stock one of “most controversial” within its coverage group given the range of outcomes on where management will guide.

Any clarity from management on how much of it plans to save $2 billion to $3 billion over the next three should provide long-term confidence for investors despite lingering near-term margin and sales uncertainties.

Lejuez is also keeping an eye on Target’s inventory, which contributed to significant margin pressure last year. He expects a slight year-over-year improvement compared with the third quarter. Signs of better performance in discretionary categories like apparel should boost investor sentiment.

“Any early signs that the company is seeing better sales in these discretionary categories would be a positive, even if the improvement is against very easy comparisons in 1H23,” he wrote.

Citi expects negative comparable sales for the year versus the 1% increases expected by consensus.

— Samantha Subin

The combination of stubborn inflation and a resilient labor market means that the early 2023 rally for stocks can’t last, according to Morgan Stanley chief U.S. equity strategist Mike Wilson.

“The Fed doesn’t want to give any chance to inflation rearing its head again. We think there’s at least two more hikes, maybe three, going into June,” Wilson said on “Squawk Box.”

Wilson’s comments to CNBC came after a note dated Feb. 19 that warned that stocks had risen “into thin air” and were due for a sharp pullback.

Watch Wilson’s full interview on CNBC Pro.

— Jesse Pound

Goldman Sachs upgraded Vir Biotechnology to buy from neutral, and raised its price target, saying shares could more than double on the back of new flu vaccine data in the year ahead. Called VIR-2482, the antibody treatment offers users broad protection against flu strains, according to Vir.

“VIR will report VIR-2482 (intramuscular injected monoclonal antibody for prophylaxis/prevention of influenza A) data in mid-2023, which we expect to show meaningfully better efficacy than currently approved and rival pipeline-stage flu vaccines and consequently to drive material upward revisions to consensus estimates,” analyst Paul Choi said to clients in a Tuesday note.

“Given vaccine efficacy varies greatly year to year (US average: ~40% [range: 10%-60%]) and wanes over time, VIR’s strategy of targeting a highly conserved (>98%) region of the flu virus hemagglutinin (HA) stem avoids having to predict which strains will be prevalent each flu season,” Choi added.

CNBC pro subscribers can read the full story here.

— Sarah Min

JPMorgan downgraded AutoNation to underweight from neutral, saying the car dealer stock looks overvalued.

“Execution through the pandemic has been robust and management has used excess [free cash flow] to reduce float by ~48% since the start of the pandemic, and leverage is still well in check at <2>

“We believe recent capital deployment will have little accretion in the near-term, investments are expected to increase, buybacks are likely to take a step back, and move to more M&A and related execution credibility will take time to establish. Shares are trading at a ~5% premium on EV/EBITDA making risk-reward less attractive at current levels,” Gupta added.

CNBC Pro subscribers can read the full story here.

— Sarah Min

It’s time to sell Generac amid greater macro challenges this year, according to Truist.

Analyst Jordan Levy downgraded shares to hold from buy, saying higher interest rates and inflation hurt the outlook for the power generator maker.

“As GNRC looks to return its HSB [home standby generators] & clean energy segments to strong growth in 2H:23, we see high interest rates coupled with higher product prices prolonging a recovery and posing a meaningful risk to the company’s 2023 financials,” Levy wrote in a Monday note.

CNBC Pro subscribers can read more about this downgrade here.

— Sarah Min

New research from UBS suggests that apparel sales have weakened in February and the firm expects this trend, when realized, will stoke fears about consumer spending and cause some stocks to sell off.

In a research note Monday, retail industry analyst Jay Sole said he expects “market sentiment will turn more bearish over the coming weeks.”

According to UBS, investors aren’t fully appreciating the stress high inflation and interest rates have inflicted on most household balance sheets. And now consumers will see further stress from lower tax refunds and feel the pinch from the drop in fiscal stimulus like SNAP benefits and child tax credits.

—Christina Cheddar Berk

U.S. stock futures added to their losses less than an hour ahead of Tuesday’s open. Dow Jones Industrial Average futures last dropped 322 points, or 0.95%. S&P 500 and Nasdaq 100 futures fell 0.8% and 1.1%, respectively.

— Hakyung Kim

Here are some of the companies making the biggest moves in the premarket:

• Vir Biotechnology — The immunology company jumped 13.4% after Goldman Sachs upgraded the stock to buy from neutral. The Wall Street firm also said Vir could double, citing the company’s release of flu vaccine data in the year ahead.
• AutoNation — The car dealer fell 1.8% after being downgraded by JPMorgan to underweight from neutral. The firm said AutoNation is starting to look overvalued amid the pullback in consumer demand for vehicles.
• HSBC Holdings — The bank gained about 4% after reporting fourth-quarter earnings that topped analysts’ estimates. HSBC said it had strong reported revenue growth and lower reported operating expenses.

To see more stocks moving in premarket trading, read the full story here.

— Michelle Fox

Upcoming economic data announcements will give investors greater insight to the state of the U.S. economy, according to Oppenheimer, following a volatile week for stocks and bonds. 

“Investors and traders stateside returning to a President’s Day abridged week have plenty to consider as Q4 earnings season winds down with results,” Chief Investment Strategist John Stoltzfus wrote in a Tuesday note.

He continued, “From a macro perspective a brace of economic data this week should provide fodder for insights and commentary on the health of the US economy particularly as it relates to inflation, monetary policy and earnings in the months ahead with both earnings results and economic data to call the direction of stocks, bonds and other assets.”

The Fed is scheduled to release the minutes of its meeting of Jan. 31 and Feb. 1 on Wednesday. The quarterly GDP growth rate and February’s consumer sentiment data will be released on Thursday and Friday, respectively.

— Hakyung Kim

Walmart shares dipped 2.5% even after the retail giant posted better-than-expected results for the previous quarter.

The company earned $1.71 per share on revenue of $164.05 billion in its fiscal fourth quarter. Analysts expected earnings per share of $1.51 on revenue of $159.72 billion.

However, CFO John David Rainey said, “the consumer is still very pressured.”

“And if you look at economic indicators, balance sheets are running thinner and savings rates are declining relative to previous periods. And so that’s why we take a pretty cautious outlook on the rest of the year.”

— Fred Imbert, Melissa Repko

Home Depot shares fell roughly 3% after the home improvement retailer posted a mixed quarterly report.

The company’s earnings per share of $3.30 topped a Refinitiv forecast of $3.28 per share. Revenue, however, came in at $35.83 billion. That’s slightly below a consensus estimate of $35.97 billion. Home Depot also said it sees sales to remain flat for fiscal 2023.

— Fred Imbert

Retail giants Walmart and Home Depot are slated to report earnings Tuesday, and they could give investors some insight on how well the consumer is doing. Both companies are scheduled to post their latest quarterly results before the bell.

Home Depot’s earnings have beaten expectations for 10 straight quarters, FactSet data shows. Walmart, meanwhile, has outpaced analyst forecasts in eight of the last 10 quarters.

Walmart and Home Depot have lagged the broader market to start 2023. Walmart’s stock is up just 3.3% year to date, while Home Depot has advanced just 0.7%. The S&P 500 has climbed more than 6% in that time.

— Fred Imbert

The Federal Reserve’s release of it’s Jan. 31-Feb. 1 meeting minutes could be a market-moving event this week, as traders continue to search for clues on the central bank’s next policy moves.

The minutes are slated for release Wednesday at 2 p.m. At that meeting, the central bank hiked rates by 25 basis points and noted it expects “ongoing” increases.

Last week, St. Louis Fed President James Bullard said a 50 basis point rate hike can’t be ruled out at the next meeting. He also said he advocated for such a rate increase at the most-recent meeting.

— Fred Imbert

Many of the traders who were short tech are unwinding those positions, Goldman Sachs said.

Strategists at the bank noted that, over the past 12 trading day, buying on U.S. tech names has been mainly driven by short covering “and to a much lesser extent long buys.”

“In cumulative notional terms, the short covering in US Tech stocks from Jan 31st to Feb 15th is the second largest in magnitude over any 12-day period in the past decade and ranks in the 99.5th percentile,” Goldman said.

— Fred Imbert, Michael Bloom

U.S. stock futures got off to a rough start Monday night. Dow and S&P 500 futures lost 0.3% and 0.2%, respectively. Nasdaq-100 futures also dipped 0.2%.

— Fred Imbert