Tech rebounds before Nvidia, shoppers turn gloomy

All three major US indexes closed higher on Tuesday. The S&P 500 rose 23.76 points, or 0.31%, to 7,676.62, the Nasdaq Composite gained 165.28 points, or 0.64%, to 26,145.47, and the Dow Jones Industrial Average added 155.75 points, or 0.29%, to 53,572.91. Technology shares led the rebound after Monday's slide, while Dick's Sporting Goods cratered, falling about 25% after the retailer cut its forecasts for the year.

The day ran on two chains, and they pointed in opposite directions.

The first chain lifted stocks. Oil fell to a one week low after traders decided that the new US sanctions on Iran were less disruptive than they had feared, because the Treasury Department did not immediately name which countries would be penalized and instead gave governments time to comply. Cheaper oil matters far beyond the gas pump, because energy is an input into almost everything that gets made or shipped, so when crude falls, expected inflation falls with it. Lower expected inflation means bond investors demand less compensation for lending money over long periods, and that pushed longer dated Treasury yields down, with the 10 year yield easing to roughly 4.64% by midday. Falling yields help technology stocks most of all, because those companies are valued mainly on profits expected years from now, and a lower yield means those distant profits are discounted less heavily and are therefore worth more today. That is why the Nasdaq rose twice as much as the Dow.

The second chain had nothing to do with markets and everything to do with households. The Conference Board's consumer confidence index fell to 89.4 in August, its lowest reading in seven months. The detail that matters is the split inside it. The Present Situation Index, which measures how people feel about conditions right now, actually rose 6.8 points to 121.2, its first improvement in four months, and more people said jobs were plentiful. But the Expectations Index, which measures how people feel about the next six months, dropped 5.8 points to 68.2. The Conference Board notes that readings below 80 on that measure have historically been associated with a recession within a year. Households also said they expect prices to rise 5.8% over the next year, up from 5.6% the month before. So people feel fine about today and worried about tomorrow.

Dick's Sporting Goods showed what that mood does to a company. It missed on earnings, but the real damage came from cutting its outlook for the full year to $11 to $12 per share against Wall Street's $14.20, and from reversing its expectation that Foot Locker, the sneaker chain it bought for $2.4 billion, would grow. Executives said legacy sneaker styles were no longer resonating with shoppers, which left the company with too much inventory it now has to discount.