MarketView for Febuary 25

Summary

Stocks edged lower on Tuesday, easing back from record territory a day earlier as weak economic data offset gains in Home Depot and other retail shares.

Seven out of the 10 S&P 500 sector indexes ended lower, led by the industrial index, while the consumer discretionary index led on the upside. The S&P retail index rose 1.9 percent, while the consumer discretionary index gained 0.5 percent.

Home price increases slowed in December, according to the S&P/Case-Shiller index, while the consumer confidence index fell more than expected in February.

Selling picked up slightly late in the session as traders unwound positions after the S&P 500 failed to break above Monday's intraday record high of 1,858. The index remained in negative territory, down 0.2 percent, for the year.

Home Depot shares jumped 4 percent to $80.98, adding momentum to both the Dow Jones Industrial Average and the S&P 500. Home Depot's earnings exceeded expectations, though sales fell more than expected in the fourth quarter.

Shares of Macy's were up 6 percent to $56.25 after the company reported a drop in January sales, but said fourth-quarter earnings rose from the previous year.

While many on the Street have pinned the weakness to harsh winter weather rather than weakening fundamentals, the retail earnings suggest that spending has not dried up.

Investors are anxious to hear from Federal Reserve Chair Janet Yellen, who will speak on Thursday to the Senate Banking Committee in her semiannual testimony about monetary policy. Her comments will be scoured for insight into how bad weather has affected economic activity, as well as for confirmation that the Fed will not change its schedule for trimming the QE3 program.

Among other corporate results, Tenet Healthcare reported a net loss in its fourth quarter. Tenet's adjusted earnings, however, were better than expected. Nonetheless, Tenet’s shares ended the day down 9.1 percent to close at $43.93.

Perry Ellis International fell 17.5 percent to $12.93 and hit its lowest level since late 2011, a day after the clothing company forecast a decline in quarterly revenue.

Approximately 6.7 billion shares changed hands on the major equity exchanges, a number that was below the 7 billion share average so far this month, according to data from BATS Global Markets.

Some Economic Data Weakens

Home price gains slowed in December, according to the S&P/Case-Shiller 20-city home price index on Tuesday, underscoring a loss of momentum in the housing recovery, while consumer confidence drifted lower this month.

The S&P/Case-Shiller 20-city home price index rose a seasonally adjusted 0.8 percent in December, down from a 0.9 percent rise in November. For the 12 months to December, prices were up 13.4 percent, below the peak of 13.7 percent in November and the first decline in the rate of change since June.

Recent data have shown the housing recovery losing steam in the early part of the year. Housing starts fell 16 percent in January, the largest decline in almost three years, and home re-sales slid to a 1-1/2 year low last month.

Bitter cold and serial snowstorms this winter have been blamed in part for the weakness in the housing sector, although higher mortgage rates and low inventories may have also caused some damage.

On Tuesday, Toll Brothers, the largest U.S. luxury homebuilder, reported a fall in quarterly orders for the first time in three years as a severe winter deterred buyers. Home Depot's higher-than-expected earnings number came in as cost cuts offset weak sales.

A Reuters poll indicated that home price inflation, as measured by the S&P/Case-Shiller index, is seen slowing to less than 7 percent this year as mortgage rates rise and there is a gradual transition away from a market driven by institutional buyers looking for bargains.

A sentiment survey on Tuesday suggested consumers were wary of future economic conditions.

Consumer confidence fell slightly in February, according to the Conference Board, an industry group. According to the Board, its index of consumer attitudes fell to 78.1 from a downwardly revised 79.4 in January.

"While expectations have fluctuated over recent months, current conditions have continued to trend upward," Lynn Franco, director of economic indicators at The Conference Board, said in a statement.

"This suggests that consumers believe the economy has improved, but they do not foresee it gaining considerable momentum in the months ahead."