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Home Depot, Caterpillar stock declines weigh on indices

U.S. stocks sold off in the final hour of trading Tuesday to end a choppy session lower.

The S&P 500 (^GSPC) ticked down 0.08%, or 2.21 points, as of market close. The Dow (^DJI) edged lower by 0.13%, or 33.97 points, as declines in shares of component companies Caterpillar (CAT) and Home Depot (HD) pulled the index lower. The Nasdaq (^IXIC) fell 0.07%, or 5.16 points.

Investors on Tuesday turned their attention to Capitol Hill amid separate hearings on monetary policy and drug pricing.

Federal Reserve Chairman Jerome Powell delivered his semiannual update on the state of the U.S. economy to the Senate Banking Committee starting at 10:00 a.m. ET. Powell said in prepared remarks that while the economy has grown at a “strong pace” on balance last year, “crosscurrents and conflicting signals” have emerged over the past several months. He pointed to financial conditions that “are now less supportive of growth than they were earlier last year,” along with uncertainty in foreign markets amid slowing global growth, Brexit and ongoing trade negotiations.

These remarks echo points made following the Federal Open Market Committee’s decision to hold interest rates in January. In the weeks following the latest meeting, central bank officials have continued to point to “muted” inflation risks but mounting geopolitical concerns abroad.

The 10-year Treasury yield declined 3 basis points to 2.643% as of 3:05 p.m. ET.

Separately, executives from seven pharmaceutical companies took part in a congressional hearing Tuesday to face questions about rising prescription drug costs before members of the Senate Finance Committee. Drug pricing concerns have represented a rare bipartisan concern among lawmakers, despite potential solutions differing among lawmakers on either side of the aisle. The executives conveyed that cuts to list prices in the U.S. would be difficult to implement unless new legislation or policy changes were introduced.

The Trump administration has proposed ending a series of rebates drug-makers pay to pharmacy benefit managers in programs like Medicare in order to deflate high list prices of pharmaceuticals. Senator Chuck Grassley (R-Iowa), chair of the Senate Finance Committee, and Sen. Amy Klobuchar (D-Minn.) have introduced legislation that would allow prescription drugs to be imported from Canada and protect against anti-competitive means by pharmaceutical companies to try and delay the introduction of cheaper generics and biosimilars.

The CEOs of AbbVie, Bristol-Myers Squibb, Merck, Pfizer, AstraZeneca and Sanofi were among the participants, while Johnson & Johnson sent the head of its pharmaceutical unit. The hearing comes as the prices of hundreds of prescription drugs have increased since the start of the year, which many pharmaceutical companies have said was needed to offset larger rebates sent to pharmacy benefit managers who negotiate prices with clients.

Elsewhere, U.S. crude oil prices (CL=F) were marginally higher after posting their largest single-day drop in four weeks Monday following a Trump tweet calling for lower prices. The pound (GBPUSD=Xrose to a four-month high against the dollar Tuesday before paring some gains following reports that UK Prime Minister Theresa May could delay Britain’s March 29 exit from the European Union.

STOCKS

Shares of Caterpillar (CAT) were downgraded to Sell from Buy by UBS in a note published Monday, with the firm lowering its price target to $125 from $154. UBS analyst Steven Fisher wrote that the firm believes about 55% of Caterpillar’s end markets will peak in 2019, leading to revenue and margin pressure in 2020 due to declining demand. Fisher said an earnings per share decline is not priced into the stock, and expects 2020 EPS to decline about 8% year over year “as continued growth in mining and buybacks will not be enough to offset headwinds in construction and oil & gas.”

Home Depot (HD) shares declined after the company reported fourth-quarter earnings and sales below Wall Street’s expectations. The company delivered adjusted earnings of $2.09 per share, below estimates of $2.16, while same-store sales rose just 3.2%, versus expectations of a 4.5% increase. The home goods store’s performance, which serves as a gauge of confidence in the U.S. housing market, is also set to come in light this year: Home Depot said it expects same-stores sales growth of 5% for the full year, 20 basis points short of its 2018 rate.

Tesla (TSLA) shares ended slightly lower after the Securities and Exchange Commission requested that a judge hold CEO Elon Musk in contempt for violating a settlement the agency reached with him last fall. Musk wrote in a Twitter post last week that “Tesla made 0 cars in 2011, but will make around 500k in 2019,” before shortly thereafter amending the statement in a follow-up post reading, “Meant to say annualized production rate at end of 2019 probably around 500k, i.e. 10k cars/week. Deliveries for year still estimated to be about 400k.” The SEC said in a court filing that Musk did not “seek to receive pre-approval prior to publishing” the original Twitter post, which the agency said “was inaccurate and disseminated to over 24 million people.” Musk responded with a post on Twitter stating that, “SEC forgot to read Tesla earnings transcript, which clearly states 350k to 500k.”

ECONOMY

Consumer confidence rose more-than-expected in February after three straight months of declines, with the index rising to 131.4 for the month from and upwardly revised 121.7 in January, according to the Conference Board. Consensus economists expected a reading of 124.9 for the headline index. Indices measuring consumers’ assessments of current business and labor market conditions and expectations of the short-term outlook also improved over last month.

“The Present Situation Index improved, as consumers continue to view both business and labor market conditions favorably. Expectations, which had been negatively impacted in recent months by financial market volatility and the government shutdown, recovered in February,” Lynn Franco, senior director of economic indicators at the Conference Board, wrote in a statement. “Looking ahead, consumers expect the economy to continue expanding. However, according to The Conference Board’s economic forecasts, the pace of expansion is expected to moderate in 2019.”

New-home construction slumped 11.2% in December, falling well below consensus expectations of just a 0.1% decline, the Census Bureau reported Tuesday. Housing starts for privately owned homes were at a seasonally adjusted rate of 1.078 million, or the lowest reading since September 2016 and below the downwardly revised November estimate of 1.214 million. Building permits, however, were stronger than expected, rising 0.3% month-over-month in December versus an expected 2.6% decline. The results point to stronger homebuilding in the first part of 2019, as permits point to future construction.

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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