S&P 500, Dow turn lower ahead of array of Fed speakers, Nvidia earnings

What’s driving markets

Earnings reports and hints on monetary policy may serve as some catalysts in the holiday-shortened week. The Dow briefly clawed into barely positive territory early Tuesday but then fell back into negative territory with the other two major benchmarks. The S&P 500 and Nasdaq Composite were sharply lower Tuesday afternoon.

It’s a sign of selling nerves as investors wait for more information to trade on, some say.

The first issue for investors to consider were the earnings on Tuesday of big retailers Walmart
WMT,
+3.34%
and Home Depot
HD,
-0.39%,
which gave clues to consumer’s minds and wallets.

Walmart shares were rising Tuesday after an earnings beat, though Home Depot shares prices were lower following its results.

The Walmart and Home Depot results were some bold-faced names for Tuesday earnings news, but when it comes to closely-watched results, it could be tough to beat the focus on earnings from Nvidia
NVDA,
-6.00%
earnings, which come after Wednesday’s market close.

Investors are aware the reception afforded the AI-chipmaker may determine broader market sentiment for a while. “Unsurprisingly, there are big expectations for Nvidia, and if they fail to deliver this could be a major upset to the S&P 500, as the top five stocks in the U.S. blue chip index have fueled 75% of its gains so far in 2024,” said Kathleen Brooks, analyst at XTB.

Tuesday’s lackluster performance is “nervousness going into Nvidia earnings,” said Kent Engelke, chief economic strategist and managing director at Capitol Securities Management. “Unless Nvidia completely blows it out the water, I think things will be flat to down in the immediacy,” he said in a phone interview.

Beyond Nvidia, people are still spooked by January inflation data and what it could mean for interest rates, Engelke said.

That highlights the other big picture this week: The parade of Fed officials speaking, coupled with the Wednesday afternoon release of minutes from the central bank’s January 31 meeting.

For Jeffrey Schulze at ClearBridge Investments, the Fed is still the driver behind market moves Tuesday.

“There isn’t a clear risk-off smoking gun,” said Schulze, managing director and head of economic and market strategy at the firm.  What’s likely instead is more of last week’s “jitters” after hotter-than-expected inflation January data on consumer and and wholesale prices.

That would likely translate to steeper numbers in the Fed’s preferred inflation gauge, coming next week, and it’s “going to reinforce the Fed’s wait-and-see stance,” Schulze said.

He’s expecting the January meeting minutes to reiterate what Fed chair Jerome Powell said at the press conference, so Schulze’s big focus is what a parade of Fed officials will say this week.

There’s seven Fed speakers scheduled to talk in the coming days.

“We’re going to get a clear idea on how much weight the Fed is putting into the speed bump we saw” from the January inflation data so far, Schulze noted. “Expectations for monetary policy are the clear driver for the rest of the week.”

Andrew Hollenhorst, economist at Citi, said the minutes will likely follow recent Fed speakers in suggesting that the Fed will lower interest rates this year but only ‘carefully’ once officials have ‘greater confidence’ that inflation is durably slowing towards 2%.

“Most interesting might be any details of the winding down of balance sheet reduction. An ‘in-depth’ discussion on the balance sheet is scheduled for March,” said Hollenhorst.

Ahead of Wednesday’s minutes, there was also some economic data to consider Tuesday, offering a mixed picture.

The leading economic index for the U.S. fell last month, marking the 22nd straight decline. The 0.4% decline for January still offered signs of hope, with six of 10 components showing positive results. It’s been two years since that happened.

Companies in focus

• Capital One Financial Corp.
  COF,
  +0.61%
  shares are 0.6% higher after news of the credit card giant’s plan to purchase Discover Financial Services. Discover
  DFS,
  +14.21%
  shares are over 14% higher after news of the planned tie-up in an all-stock deal valued over $35 billion.

• Walmart Inc. shares are 3% higher early Tuesday after corporate earnings from the retail giant. The company reported a beat on earnings and raised its dividend by 9%. Walmart also confirmed a $2.3 billion purchase of smart-TV maker Vizio.

• Home Depot Inc.  shares sunk 0.5% Tuesday after earnings from the home improvement company. Though beating on net sales, it missed expectations on U.S. same-store sales and offered a full-year outlook that also disappointed Wall Street.