The August sell-off continued Tuesday, with stocks slumping across the board. Investors had to contend with a shocking move from China's central bank, as well as good-news-is-bad-news in the form of resilient U.S. consumer spending.
Not all of the action was to the downside, however, with several stocks popping on news they were added to Warren Buffett's Berkshire Hathaway (BRK.B) portfolio.
U.S. markets opened lower this morning after data released overnight showed Chinese retail sales and industrial output grew at a slower month-over-month pace in July, missing economists estimates. Additionally, the country's unemployment rate rose to 5.3% from 5.2% in June, while the jobless rate for those ages 16-24 hit 21.3%. This prompted Chinese officials to say they will no longer report the youth unemployment rate.
Also spooking investors were reports that the People's Bank of China lowered several key interest rates. "This was an unexpected move as officials have signaled that they didn't want to see the currency weaken further," says Michael Reinking, senior market strategist at the New York Stock Exchange. "This is the most recent step taken to try and spur demand though to no avail thus far."
Retail sales, Home Depot earnings in focus
Back at home, the latest retail sales data shows consumers remain resilient, which has many worried that the Federal Reserve could keep interest rates higher for longer. Specifically, the Commerce Department said retail sales were up 0.7% month-over-month in July, higher than what was seen in June and coming in above economists estimates. Internet retail sales soared 1.9% thanks in part to a strong turnout for Amazon.com's (AMZN, -2.1%) Prime Day.
Underscoring strength in consumer spending were second-quarter results from Home Depot (HD, +0.7%). The home improvement retailer reported higher-than-expected Q2 earnings of $4.65 per share on $42.9 billion in revenue. HD also reiterated its full-year guidance and unveiled a $15 billion stock buyback program.
"Despite the additional pressure put on the Fed, Americans' sustained ability to spend speaks to the strength of the U.S. economy in the face of global economic challenges," says Mike Loewengart, head of model portfolio construction at Morgan Stanley.
Today's selling was widespread with all 11 S&P 500 sectors finishing in the red, paced by significant losses for energy (-2.1%) and financial stocks (-1.8%). As for the major indexes, the Dow Jones Industrial Average slumped 1.0% to 34,946, the S&P 500 fell 1.2% to 4,437, and the Nasdaq Composite gave back 1.1% to 13,631.
Buffett buys homebuilder stocks
Despite the broad-market blasting, several homebuilder stocks advanced after regulatory filings showed they were added to Warren Buffett's Berkshire Hathaway equity portfolio in the second quarter. Specifically, Buffett & Co. initiated new positions in homebuilders D.R. Horton (DHI, +2.9%), Lennar (LEN.B, +2.0%) and NVR (NVR, +0.5%).
On the flip side, Buffett exited a number of positions, including healthcare services stock McKesson (MCK, -1.6%) and insurance company Marsh & McLennan (MMC, -1.1%). Here, we feature the full list of the stocks Buffett bought and sold in Q2.
