US Stocks Sell Off, Erase Tuesday’s Rally – Morningstar.com

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By Anora Mahmudova and Victor Reklaitis, MarketWatch

The SPDR S&P Retail ETF has its worst drop in nearly 5 years

A steady selloff on Wall Street that accelerated at the close Wednesday erased nearly all of the sizable gains from the previous day’s session, as disappointing earnings from Disney and a slump among retailers led to disquiet among investors.

A slide in consumer-discretionary stocks, which include retail shares such as Macy’s and Nike, weighed on the Dow and S&P 500, offsetting a 4% jump in oil prices.

The Dow sank 217.23 points, or 1.2%, to 17,711.12, led by Walt Disney Co.’s 4% selloff and a 3.7% drop in Nike Inc. (NKE). Of the 30 blue-chip stocks, all but one ended in negative territory. Only Microsoft Corp.(MSFT) closed marginally higher.

The S&P 500 dropped 19.93 points, or 1%, to 2,064.46, with nine of its 10 main sectors trading lower. Retailers such as Staples Inc.(SPLS), Macy’s Inc.(M), and Michael Kors Holdings Ltd. (KORS) declined by double digits.

The SPDR S&P Retail ETF (XRT) was down 4.4%, representing its worst decline since August 2011.

Meanwhile, the Nasdaq Composite declined 49.19 points, or 1%, to 4,760.69.

“It’s clear that sentiment was dented by disappointing earnings today, especially by Disney,” said Karyn Cavanaugh, market strategist at Voya Investment Management.

Cavanaugh sounded optimistic in her outlook for the rest of the year, however, despite the 7.5% decline in first-quarter profit growth.

“Earnings in the second quarter will also be negative, but not as bad as in the first quarter, and will improve in the second half of the year,” she said. Cavanaugh said she expects the Federal Reserve, which has maintained an ultraloose monetary policy despite raising rates in December, to keep benchmark interest rates low.

Tuesday’s rally for stock markets surprised some investors who still harbor concerns about corporate growth and economic sluggishness overseas.

“Yesterday’s global equity journey was strangely optimistic when much of the economic data has been a little light in recent times,” said David Buik, market commentator at Panmure Gordon & Co., in a note Wednesday. “As the threat of an increase in the Fed rate dissipates, investors girded up their loins, buoyed by higher oil, better quality earnings and a feeling that perhaps markets had been oversold.”

“It wasn’t so much a euphoric session; it was just a question of sentiment improving,” Buik added.

Other markets: On Wednesday, West Texas intermediate crude (http://www.marketwatch.com/story/crude-prices-fall-on-sticky-worries-about-oversupply-issues-2016-05-11) settled 3.5% higher at $46.23 a barrel after a drop in U.S. crude inventories and declines in domestic production. European stocks (http://www.marketwatch.com/story/european-shares-under-pressure-as-jcdecaux-oil-prices-pull-back-2016-05-11) ended mostly lower, while Asian markets (http://www.marketwatch.com/story/aussie-stocks-jump-as-oil-gains-but-other-asian-markets-mixed-2016-05-11) closed mixed. Gold futures gained, as the ICE U.S. Dollar Index pulled back.

Individual movers: Disney (DIS) was the biggest decliner within the Dow, after the entertainment giant late Tuesday posted weaker-than-expected quarterly results (http://www.marketwatch.com/story/disney-results-boosted-by-star-wars-zootopia-2016-05-10-164853110).

“Despite two blockbuster movies in ‘Star Wars’ and ‘Zootopia,’ Walt Disney failed to meet analysts’ expectations,” Buik said.

Read: Reactions to Disney’s big miss — still “significant value” in movies (http://www.marketwatch.com/story/reactions-to-disneys-miss-investors-have-been-spoiled-still-significant-value-in-films-2016-05-11)

Staples Inc.(SPLS) was the biggest loser within the S&P 500, diving 18% following news that its planned buyout of rival Office Depot Inc.(ODP) ended unsuccessfully (http://www.marketwatch.com/story/staples-office-depot-merger-killed-by-antitrust-claims-again-2016-05-10).

Macy’s Inc.(M) shares sank 15% after the retailer reported first-quarter sales that missed expectations (http://www.marketwatch.com/story/macys-shares-fall-in-premarket-after-sales-miss-expectations-outlook-lowered-2016-05-11) and issued a profit warning.

Michael Kors Holdings Ltd. (KORS) fell 12% in the wake of disappointing results from competitor Fossil.

On the upside, Electronic Arts Inc.(EA) rose 14%, making it the best-performing stock in the S&P 500. The maker of video games late Tuesday reported better-than-expected quarterly results (http://www.marketwatch.com/story/ea-leans-on-star-wars-to-beat-consensus-2016-05-10).

 

(END) Dow Jones Newswires

May 11, 2016 16:53 ET (20:53 GMT)

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