Midday Update: Retail Woes, Recalls and Rate Hike Fears

Bad retail numbers, a massive recall and hawkish Fed comments weighed on the markets midday and soured sentiment on the major indices.

The S&P 500, Dow Jones Industrial Average, and Nasdaq all fell more than half-a-percent by 1:30p.m. in the wake of disappointing earnings from Home Depot, $HD, Dick’s Sporting Goods, $DKS, and Staples, $SPLS. Small caps took an even larger hit. The iShares Russell 2000, $IWM, fell more than 1.6% by 1p.m.

On StockTwits.com, investors said the retail results and small cap price action pointed to further market declines.

All retail turning ugly $JCP $M $TJX $KSS $ANF $WMT $TGT

— Venkat (@flourish) May. 20 at 12:37 PM

$SPY Still low volume…but if $IWM is the leading index these days, watch for next S @ 187.01 (R @ 187.88 right now) http://stks.co/r0Lal

— Rish (@androsForm) May. 20 at 12:45 PM

Sentiment on the ETF that tracks the S&P 500, $SPY, fell to 62% bearish, according to StockTwits’ analytics. Sentiment on the ETF that tracks the Dow, $DIA, was also majority bearish with 51% of the crowd calling for declines. However, most conversations about the Nasdaq indicated gains ahead. About 64% of the crowd was bullish on the ETF that tracks the Nasdaq, $QQQ.

General Motors, $GM, added to the bearish mood. The embattled U.S. automaker recalled another 2.4 million vehicles to resolve safety issues and said it would take a $400 million charge for repairs this quarter. The announcement brings the grand total of recalled cars to 13.6 million. Many of those recalls were related to faulty ignition switches that GM did not address for more than a decade.

$GM: The stock just shed $1b of market cap for a $200m charge. Seems a bit much but the issue is these recalls are like roaches…

— MonacoTrader (@MonacoTrader) May. 20 at 12:50 PM

Comments by Philadelphia Federal Reserve President Charles Plosser—a known hawk—also disappointed some investors. Plosser said that continued economic improvement could lead the Fed to let interest rates rise above record lows “sooner than later.”

Fed's Plosser: Rates may need to rise earlier if growth picks up $SPY $MACRO

— TopstepTrader (@TopstepTrader) May. 20 at 12:31 PM

Fed's Plosser says may need to raise rates sooner rather than later; rate hike may come sooner than many expect $SPY $BAC $C $DIA $QQQ

— Stock Expert (@expert_stock) May. 20 at 12:46 PM

Despite the barrage of bad news, there were bright spots in the market. Home Depot, $HD, ultimately rallied more than 2% on positive guidance. Management said fiscal 2014 sales will rise 4.8% from the prior year and EPS should climb 17.6% to about $4.42. CEO Frank Blake indicated that bad weather during the past quarter tempered results but sales had picked up in areas where spring arrived on schedule.

"@mdes: $HD not a serious miss after all.. summer sales will leap"

— Eric Patrick (@PatrickVenCap) May. 20 at 09:24 AM

However, Home Depot’s guidance did little to lift the general mood. The StockTwits’ heat map showed a sea of red by 1:30p.m.

$SPY lunch is over down we go

— huge (@dogballs) May. 20 at 01:31 PM

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