McQuaid Group says US stocks sold off sharply as earnings misses at high-visibility companies, Disney and Macy’s highlighted concerns that the American consumer is reluctant to increase spending. Consumer discretionary stocks led the decline and effectively reversed what had been a positive session for the two benchmark indices, the Dow Jones Industrial Average and the S&P 500.

Walt Disney & Co posted first quarter earnings of $1.36 a share on revenues of $12.97 billion compared to Wall Street expectations for $1.40 a share on $13.19 billion. Elsewhere, department store group Macy’s beat expectations but significantly reduced its guidance for the fiscal year citing challenging conditions arising from a marked decline in tourist spending it linked to the strong US dollar.

“Consumer discretionary stocks fell because there is little to justify valuations when it’s become fairly obvious that Americans either can’t or simply won’t spend more. That the sector’s plunge took the rest of the index with it suggests that there’s not much as much confidence in other sectors as we saw last year,” said McQuaid Group’s senior economist Wade Homachi.

McQuaid Group has warned clients that further gains in US equities are susceptible to shocks from sliding corporate profits and headwinds elsewhere in the economy including slowing jobs growth. The firm has reiterated its view that emerging market stocks still represent good value, particularly in China and Southeast Asia.

“We expect momentum in emerging market equities to pick up as the likelihood of a hike in US interest rates this year fades,” said Homachi.

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