U.S. stocks close lower after weaker-than-expected housing data

What’s driving that market?

Stocks fell Tuesday with equity-market investors caught in a tug of war, as upbeat corporate results and expectations for a booming economic expansion in the wake of the COVID-19 pandemic competed with worries about lofty valuations and signs of accelerating inflationary pressures.

Sixty-nine percent of investors expect “above-trend” growth and inflation, a record percentage, according to this month’s fund manager survey by Bank of America Corp. The survey found the top tail risk is inflation, followed by a “taper tantrum,” the bank said Tuesday. Just 9% cited COVID-19 as the biggest tail risk.

Read: Fund managers position for ‘boom expectations’ with tech demand at three-year lows, Bank of America survey finds

Halo Investing, a financial technology platform for protective investing, has seen an increase in activity as a result of inflation concerns, according to its co-founder and president, Jason Barsema. Financial advisers still want exposure to technology stocks, but they’re seeking protection against the first 30% decline for companies such as Apple Inc.
AAPL,
-1.12%
and Tesla Inc.
TSLA,
+0.18%,
he told MarketWatch in a phone interview Tuesday.

Meanwhile, Home Depot
HD,
-1.02%
results provided an early boost to the mood on Wall Street after the home-improvement retailer reported fiscal first-quarter profit and sales that were well above expectations, citing “unprecedented demand” for home projects. Other heavyweight retailers, including Walmart Inc.
WMT,
+2.17%
and Macy’s Inc.
M,
-0.37%
also delivered strong results Tuesday morning.

But a round of weaker-than-expected housing data undercut the positive tone.

The Census Bureau said U.S. home builders started construction on homes at a seasonally adjusted annual rate of 1.57 million in April, representing a 9.5% decrease from the previous month’s lowered figure. The pace of permitting for new housing units increased again in April. Permitting for new homes occurred at a seasonally adjusted annual rate of 1.76 million, up 0.3% from March and 61% from a year ago.

Strong earnings from retailers were a reminder to investors that the consumer is “roaring back” as pandemic worries fade, Craig Fehr, investment strategist at Edward Jones, told MarketWatch. But the housing data, which was likely hampered by rising prices for lumber and other factors, served as a reminder that “inflation is still the predominant risk to this positive economic story.”

Retailers are bringing up the rear of what’s been a strong earnings season. But equity markets have seen choppy price action since the middle of last month, and investors should probably prepare for further volatility and consolidation, Fehr said.

“After the first year of this recovery where stocks were up sharply and rather consistently, seeing the market tread a bit of water is not a bad thing,” he said, as it gives the market “an opportunity to rein in valuations a little bit.”

Former Treasury Secretary Larry Summers on Tuesday continued his criticism of the Federal Reserve’s easy policy stance, arguing, in remarks at an event hosted by the Atlanta Fed, that the central bank’s focus on healing the jobs market is misplaced amid evidence of labor shortages.

In deal news, Amazon.com Inc.
AMZN,
-1.17%
was reportedly in discussions to buy MGM Holdings Inc., the studio behind the James Bond franchise, according to a report Monday by the Information, citing a person familiar with the situation. The report comes after AT&T Inc. T and Discovery Inc. DISCA on Monday agreed on a $43 billion deal to combine their media holdings in a new company.

Which companies are in focus?

• Shares of Walmart closed 2.2% higher after delivering earnings and revenue that topped forecasts and raised its full-year guidance.
• Macy’s Inc. shares fell 0.4% after delivering a surprise earnings beat and lifting guidance.
• Shares of Coinbase Global Inc.
  COIN,
  -3.72%
  dropped 3.7% to $239, a day after the crypto platform announced plans to sell $1.25 billion of convertible debt and that its closed below its $250 reference price for the first time since the company listed on the Nasdaq exchange in mid-April
• Flywire Corp. FLYW, set terms of its initial public offering, in which the Boston-based payments enablement and software company is looking to raise up to $208.8 million.
• BioNTech SE BNTX, the German biotech that joined with Pfizer Inc. PFE, to develop a COVID-19 vaccine that is authorized for use in the U.S., said Tuesday it has named Jens Holstein to be chief financial officer.

What are other markets doing?

• The yield on the 10-year Treasury note
  TMUBMUSD10Y,
  1.639%
  dipped 1.4 basis points to 1.639%. Yields and bond prices move in opposite directions.
• The ICE U.S. Dollar Index
  DXY,
  -0.42%,
  a measure of the U.S. currency against a basket of six major rivals, was down 0.4% to trade at its lowest level since late February.
• West Texas Intermediate crude CL00 for June delivery fell 78 cents, or 1.2%, to settle at $65.49 a barrel on the New York Mercantile.
• June gold futures GC00 inched up by 40 cents, or less than 0.1%, to settle at $1,868 an ounce, the highest most-active contract finish since Jan. 7, FactSet data show.
• The Stoxx Europe 600 index
  SXXP,
  +0.17%
  rose 0.2%, while London’s FTSE 100
  UKX,
  +0.02%
  rose fractionally.
• Hong Kong’s Hang Seng Index
  HSI,
  +1.42%
  rose 1.4%, while Japan’s Nikkei 225
  NIK,
  +2.09%
  jumped 2.1% and the Shanghai Composite
  COMP,
  -0.56%
  edged up 0.3%.

—Mark DeCambre contributed to this article