Stocks dragged at the starting bell Tuesday as Caterpillar (CAT) and Home Depot (HD) pinned down the Dow Jones industrials, and investors kept a close eye on Senate testimony from Fed chief Jerome Powell.
Hertz Global Holdings (HTZ), Mallinckrodt (MNK) and Tenet Healthcare (THC) took wide gains following their earnings reports. Etsy (ETSY) and AutoZone (AZO) also jumped on earnings, and appeared set to score breakouts. Tesla (TSLA) shares backed off hard as tensions flared between Chief Executive Elon Musk and market regulators.
The Dow Jones industrials opened down 0.4%. The S&P 500 ebbed 0.2% and the Nasdaq Composite dropped 0.3%.
Tesla notched the worst early decline among Nasdaq 100 stocks. Discovery Communications (DISCA), Caterpillar and Home Depot sat at the bottom of the S&P 500. AutoZone and JM SmuckersSJM led the S&P 500 with gains exceeding 6%.
Powell, Cohen Head To The Senate
What appears to be some sort of looming trade accord between the U.S. and China remains a primary concern for investors. But Congress will be a focal point for markets Tuesday and Wednesday as Federal Reserve Chairman Jerome Powell testifies before the Senate Committee on Banking, Housing and Urban Affairs on Tuesday, and the House Finance Committee on Wednesday.
In the past, the market has not appreciated Powell’s frankness regarding interest rate targets and balance sheet wind-downs. So the still-new Fed chief has sought to couch explanations for the Fed’s strategy in terms that are non-disruptive. Investors will be looking for a slackwater stance from the Fed looking forward. It’s likely that Powell’s primary aim is to serve up no surprises. His testimony began at 9:45 a.m. ET, with Powell saying the Fed sees current economic conditions favorable and the outlook healthy, but that “over the past few months we have seen some crosscurrents and conflicting signals,” according to the written testimony.
Also on Tuesday, Michael Cohen, former personal lawyer to President Donald Trump, will testify in a closed-door meeting before the Senate Intelligence Committee.
December Housing Starts Hit 2-Year Low
The late release of December housing starts showed activity dropping to an annualized rate of 1.078 million, down from 1.256 million in November, disappointing forecasts for an uptick to a pace of 1.260 million. December’s reading, more than a month late due to the federal government shutdown, was the Commerce Department’s weakest reading on the metric in more than two years.
Building permits, a gauge of upcoming construction activity, eased only mildly — to an annualized rate of 1.326 million. That was down from November’s 1.328 million permits issued and above expectations for a decreased rate of 1.290 million.
Caterpillar Downgraded As Markets Peak
Caterpillar skidded almost 4% lower after UBS announced a double downgrade, from buy to sell. The note also lowered the stock’s price target to 125, from 154, noting likely peaks this year in revenue-driving markets including energy production and construction markets in North America and China. Analyst views point to an 8% earnings decrease in fiscal 2020, which ends on January. Caterpillar stock has recovered to above support at its converged 10- and 40-week moving averages.
Home Depot: Weak Guidance, Dividend Boost
Home Depot veered more than 3% lower. The home improvement retailer reported adjusted earnings below expectations, while revenue came in a shade below analyst targets. Full fiscal year earnings guidance was below Wall Street views, but management did boost the company’s quarterly dividend by 32%, and launched a $15 billion share repurchase program. Home Depot stock was testing support at its 10-week moving average, within a five-month consolidation.
Tenet Healthcare: Strong Full-Year Guidance
Hospital owner Tenet Healthcare ripped 17% higher in premarket action. Fourth-quarter revenue and earnings fell much less than expected. First-quarter earnings guidance was weak and revenue guidance was just below analyst expectations. But full-year earnings guidance was well above target views. Tenet stock is up 46% from a late-December low, but still deep in a six-month correction.
Starting Bell Breakouts: Etsy, AutoZone, Alteryx
U.K.-based drugmaker Mallinckrodt screamed 18% higher early Tuesday, and Hertz Global jumped 3% on quarterly earnings results.
Arts and crafts marketplace Etsy spiked 13% higher. A 113% earnings surge and a 47% jump in revenue, reported late Monday, were well above Wall Street views. The gap-up open set up a breakaway gap buying opportunity beginning at the stock’s 64.94 opening price, and extending through 68.18.
AutoZone cranked almost 7% higher at the open. Fiscal second-quarter earnings, reported early Tuesday, easily outpaced analyst targets. Revenue met views. Gross margins increased 102 basis points. The early gain put AutoZone stock back above a cup-base buy point at 896.13. Other auto parts retailers also rallied, with Advance Auto Parts (AAP) up more than 3%, and O’Reilly Automotive (ORLY) notching a 1.7% gain.
Database software name Alteryx ramped up almost 5%, ahead of its earnings report, due late Wednesday. The Irvine, Calif.-based company has been punching up into profitability more quickly than expected. The gain sent the stock past a 74.34 buy point in a three-weeks-tight pattern. The buy zone runs to 78.06.
Tesla Dives As SEC/Musk Row Heats Up
Tesla shares dropped nearly 3% as after the Securities and Exchange Commission requested that a federal judge hold Tesla CEO Musk in contempt for violating restrictions on his Twitter communications. A Feb. 19 tweet from Musk offered an expanded view of the company’s forecast 2019 production.
The SEC claims that message violated rules outlined in a September 2018 settlement with the SEC. Those rules require that Tesla officials preapprove any message the could potentially affect that stock’s price. Musk and Tesla offered no public comment, but a Tuesday morning tweet from Musk did criticize SEC oversight.
Tesla shares rose 1.4% to 298.77 on Monday but were stuck below their 50-day and 200-day lines.
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