Retailers, small companies rally as fears on Turkey ease
U.S. is in talks with Turkey to reduce diplomatic tensions.
U.S. stocks rallied Tuesday as banks, retailers, and smaller companies jumped. That helped the market recover most of its losses from the previous two days.
The Turkish lira steadied as officials from Turkey and the U.S. said the countries are in talks to ease diplomatic tensions, which have resulted in high tariffs on Turkish steel and aluminum. Stocks in emerging markets like Argentina, Russia and Brazil jumped.
In the U.S., the biggest gains went to small and midsize companies, which do more business domestically compared to the large multinational firms on indexes like the S&P 500 and the Dow Jones Industrial average. Retailers rose, thanks in part to strong quarterly reports.
The reduced tensions with Turkey also stopped a rally in bond prices and sent yields and interest rates higher. That helped banks. Industrial and basic materials companies also rose Tuesday, but compared to other parts of the market, they didn’t recover as much of their losses.
Invesco Chief Global Market Strategist Kristina Hooper said investors are shifting money into more U.S.-focused companies in response to the Trump administration’s aggressive handling of its dispute with Turkey, a longtime member of NATO.
“This is a reminder that the U.S. is a very different country than it was just a few years ago,” she said.
The S&P 500 fell a combined 1.1 percent Friday and Monday as investors worried that Turkey’s financial woes would affect other countries.
Many retailers will report their quarterly results this week, a potential hint about how much money consumers are spending. Tapestry, the parent company of Coach and Kate Spade, jumped after its fourth-quarter results surpassed analysts’ estimates. The stock surged 12 percent to $53.16.
Auto parts retailer Advance Auto Parts jumped 7.8 percent to $156.13 after it did better than expected in the second quarter. Competitors AutoZone and O’Reilly Automotive climbed as well.
Smaller companies made outsize gains. Footwear maker Wolverine World Wide gained 2.4 percent to $38.39 and watchmaker Fossil rose 4.8 percent to $25.68.
Global markets fell Friday and Monday on concern that Turkey’s currency turmoil could spread to banks in other countries and affect the world economy. The Argentine peso and India’s rupee hit record lows against the dollar.
Those jitters eased later Tuesday.
Economists say Turkey’s central bank still needs to raise interest rates significantly to strengthen its currency. President Recep Tayyip Erdogan has ruled out that step.
Hooper said it’s common for stocks to fall across emerging markets when one country is in trouble, but that reaction isn’t necessarily justified.
“What we’re seeing in emerging markets today is a repeat of what we’ve seen crisis after crisis for the last few decades,” Hooper said. “We can’t treat all emerging markets the same way.”
Home Depot’s sales rebounded last quarter as Americans took on more remodeling projects, but rising costs for lumber and transportation are weighing on profitability.
The home-improvement chain said same-store sales increased 8 percent in the three months ended July 29, topping the projected 6.5 percent increase compiled by Consensus Metrix. The results signal a rebound from the previous quarter’s disappointment, when a longer winter pushed off outdoor renovations.
But investors’ reaction to the robust sales gain was muted, with the shares falling 0.54 percent Tuesday.
The company said inflation on everything from raw materials to fuel and transportation led it to slightly cut its outlook for gross margin; it now expects the gauge to expand by 41 basis points this year, down from a previous forecast of 44 basis points.
“We are doing our best to manage through it, but there is a real issue in the transportation markets in our country,” Chief Financial Officer Carol Tome said in a call with analysts after reporting second-quarter results.
This didn’t stop the company from increasing its annual forecast. Home Depot sees this year’s revenue gaining 7 percent and earnings at $9.42 a share. It had previously projected a sales gain of 6.7 percent and profit of $9.31 a share.
Home Depot and its smaller rival, Lowe’s, are often seen as proxies for the health of the housing sector because property owners spend more on their homes when they believe values are rising. But for several quarters there’s been increasing concern that years of robust home-price gains are cooling.
For its part, Home Depot has continually said that a shortage of available homes in many markets would actually underpin higher home-improvement spending.
Earnings in the quarter amounted to $3.05 a share, Atlanta-based Home Depot said. Analysts had estimated $2.84.