Stock Market Today: Stocks Struggle Ahead of Rate-Cut Clues

Stocks were mostly lower Wednesday in a session that shrugged off more stimulus from China's central bank and instead focused on economic data in the U.S. and a speech by Federal Reserve Chair Jerome Powell scheduled for Thursday morning.

U.S. equity markets opened higher on news that China's central bank will cut a medium-term lending rate – one day after unveiling its largest stimulus package since the pandemic. However, any enthusiasm soon faded with domestic economic data regarding housing. Specifically, new home sales beat expectations, but continue to decline amid high mortgage rates. 

Sales of new single-family homes came in at a seasonally adjusted annual rate of 716,000 in August, representing a decline of 4.7% from July, according to the U.S. Census Bureau and the Department of Housing and Urban Development.

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Analysts were anticipating new home sales to decline to an annual rate of 696,000, but the better-than-expected figure was "due to an increase in new home sales in the South region, which is the largest region of the country," wrote Raymond James Chief Economist Eugenio Alemán.

While the South reported an increase of 2.7% month over month and a 26.6% increase on an annual basis, the Northeast saw a month-over-month decline of 27.3% and an annual decline of 33.3%, the economist added. 

The overall weakness in new home sales "showed up in both an increase in the supply of homes, as well as in a lower median price for new homes," Alemán said.

Powell, rates in focus

The home sales data and other events on the economic calendar – such as Powell's Thursday speech and a key inflation reading on Friday – once again put market participants on edge about monetary policy. 

"Investors are realizing that the Fed's journey down the monetary policy stairs may not bolster the ailing real estate sector, with long-end yields remaining elevated despite the central bank's jumbo rate reduction last week," notes José Torres, senior economist at Interactive Brokers.

The path for rate reductions remains unclear, with futures traders assigning a 59% chance to another half-point cut – up from 37% a week ago – at the next Fed meeting, according to CME Group's FedWatch Tool. Meanwhile, odds of a quarter-point reduction fell to 41% from 62% one week ago.

Friday's release of the Fed's preferred inflation gauge – the Personal Consumption and Expenditures (PCE) Price Index – is also likely to force market participants to recalibrate some bets. 

At the closing bell, the blue chip Dow Jones Industrial Average was off 0.7% at 41,914, while the broader S&P 500 lost 0.2% to 5,722. The tech-heavy Nasdaq Composite added less than a tenth of a percent to end at 18,082. 

Stocks on the move

Visa (V) stock declined 1.1% after falling more than 5% yesterday after the Department of Justice announced that it is suing the payments giant.

The DOJ's complaint accuses Visa of having a monopoly over the debit card market and claims it uses its dominance to prevent competition. This allows the company to charge more for processing transactions than it would in a competitive market, the Justice Department says.

Visa responded by calling the lawsuit "meritless."

Stitch Fix (SFIX) stock plunged almost 40% after the online personal styling company reported mixed earnings results for its fiscal fourth quarter and provided a disappointing outlook for the first quarter and full fiscal.

"Management's ongoing turnaround strategy of strengthening its operational and financial foundations while improving the client experience is showing green shoots but this progress is being more than offset by ongoing client losses," says Truist Securities analyst Youssef Squali (Hold). 

KB Home (KBH) stock tumbled 5.4% after the homebuilder reported mixed results for its fiscal third quarter and updated its full-year outlook, which included a downwardly revised housing gross profit margin.

KBH now anticipates revenue in the range of $6.85 billion to $6.95 billion, an average selling price of approximately $490,000 and a housing gross profit margin that's between 21.1% to 21.2%. 

This compares with its previous outlook of revenue in the range of $6.7 billion to $6.9 billion, an average selling price of $485,000 to $495,000 and a gross profit margin of 21.1% to 21.5%.

"Fiscal third-quarter order growth was less than we expected due to year-over-year declines in KB's Southwest and Southeast segments," says Wedbush analyst Jay McCanless, who rates KBH at Neutral (the equivalent of Hold). Meanwhile, competitive pressures in Texas and Florida weighed on order growth.

"On a positive note, KB indicated traffic and sales absorption improved in sync with lower mortgage rates through August and into September," the analyst notes.

McCanless has a lot of company on Wall Street, which has surely noticed that KBH stock is up 80% on a price basis in 2024. Of the 15 analysts covering KBH surveyed by S&P Global Market Intelligence, two call it a Strong Buy, two say Buy, eight have it at Hold, one rates it at Sell and two say Strong Sell. That works out to a consensus recommendation of Hold. 

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