A Platter of Economic Announcements Served up for Thanksgiving

Stock index futures are pointing to a lower open as investors anticipate a light day of trading before the Thanksgiving holiday. Investors weigh economic announcements including durable goods orders, gross domestic product (GDP), initial jobless claims, new home sales, crude oil inventories, and the FOMC meeting minutes. Some retail stocks falling on higher than expected inventories.

https://tickertapecdn.tdameritrade.com/assets/images/pages/md/Economic Announcements
5 min read
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Key Takeaways

  • OPEC+ Defiant in the Face of the United States, Britain, China, India, Japan, and South Korea

  • Market Breadth Breaking Down Once Again 

  • Petroleum Products Bouncing: To Drill or Not to Drill

(Wednesday Market Open) First off, I want to wish a Happy Thanksgiving to all. Second, as you probably know, the market will be closed on Thursday for Thanksgiving and will only be open half a day on Friday. I’m going to be celebrating with my family, so there won’t be a Market Update on Friday, but I’ll be back again on Monday the 29.

Equity index futures are pointing to a lower open in what will likely be a low volume day of trading. However, it’s a heavy day for economic announcements. The Census Bureau released the durable goods orders which came in at expectations, which suggests that business continues to grow. The U.S. Gross Domestic Product (GDP) confirmed that the economy is growing with a rate of 2.1% in third quarter. However, it was lower than the 2.2% forecasted.

Inflation is also growing according the Core PCE Prices report that grew in line with expectations at 4.5%. When accounting for other products outside of the just the core items, prices grew 5.3% in the third quarter.  

There was good news for the job market. Jobless claims came in better-than-expected and falling below 200,000, which is the first time it reached that level since the pandemic. 

Retail inventories came in at a healthy 0.4%, which isn’t what investors found with two retailers that reported inventory problems yesterday. After the market closed, Nordstrom’s (JWN) fell 23% in after-hours trading after beating on revenue but missing on earnings. Additionally, the company said it had high inventories that were causing concerns among investors that the company had missed on its choice of product trends.

Gap (GPS) also fell 15.7% in after-hours trading after missing on revenue and earnings estimates. The company also lowered its annual earnings forecast because of supply chain and inventory problems ahead of the holiday season. 

A number of other retail stocks fell on Tuesday including, Abercrombie & Fitch (ANF) which fell 12.59%, Best Buy (BBY) declined 12.31%, Dick’s Sporting Goods (DKS) dropped 4%, and Urban Outfitters (URBN) was down 9.31%. However, it wasn’t all bad for retailers, Dollar Tree (DLTR) and Burlington (BURL) both rallied on their earnings reports, climbing 9.17% and 8.57% respectively.

When the big box stores were announcing last week, retail stocks became a market darling. However, investors are now focusing on profit margins and inventories to sort through which retailers are set to grow and which are set to struggle. Overall, retailers are still positive with the Dow Jones U.S. Retail Index ($DJUSRT) closing a little higher on Tuesday.

One non-retail stock that was also among the losers was Zoom (ZM). It fell more than 14.71% on concerns that as the pandemic is easing, video conferencing demand will slow. The stock is down over 50% for the year, which has some analysts saying that concerns are overblown.  

Stocks were mixed on Tuesday as crude oil (/CL) rallied 2.28% despite an announcement that the White House was planning to release a record 50 million barrels from the country’s Strategic Petroleum Reserves. According to The New York Times, the move is meant to coincide with Britain, China, India, Japan, and South Korea who also plan on releasing reserves too. These countries are attempting to pressure OPEC+ to increase their output, but the announcements were immediately rebuffed.

The S&P Energy Select Sector Index ($IXE) rallied 3% on the bounce in oil prices. The 10-year Treasury yield (TNX) also rose in reaction to oil price adding another 2.58% to yesterday’s gain of 5.79%. The rise in rates pulled down the tech-heavy Nasdaq (COMP:GIDS) that dropped more than 1.1%but rallied to close down 0.5%. Rising yields were good for the S&P Financial Select Sector Index ($IXM), which rallied 1.55% with the rising rates.

Sliced Breadth

The stock market is struggling once again with breadth. The Russell 2000 (RUT), which tracks 2,000 of the smallest publicly traded companies, broke above resistance in November and rallied higher. However, the index broke down throughout the month before breaking below the original resistance level. Technical analysts see the inability to maintain a breakout as a sign of weakness and a lack of conviction.

Similar weakness can also be seen in the New York Stock Exchange (NYSE) advance/decline (A/D) line that moved higher at the same time the Russell 2000 did but is also retracing its recent move. You may recall that the A/D line measures the number of stocks that are advancing or rising on the NYSE to the number of stocks that are declining or falling. The rising line is bullish because it signals the majority of stocks are going up. A falling line is bearish because it signals the majority of stocks are going down.

A strong bull market is commonly broad-based with the majority of stock participating. Strong bullish sentiment is often characterized by risk-taking, which means that the waning interest in small-cap stocks suggests that investors aren’t willing to take risks on smaller and less-established companies. These developments suggest that sentiment is turning less bullish despite the major indices trading near record highs. 

Failing market breadth

CHART OF THE DAYSTALE BREADTH. The Russell 2000 Index (RUT—candlesticks) formed a bull trap when it failed to maintain broken resistance. The NYSE advance/decline line (green) is rounding over, suggesting more stocks are starting to decline. Data Sources: ICE, S&P Dow Jones Indices. Chart source: The thinkorswim® platformFor illustrative purposes only. Past performance does not guarantee future results. 

Gravy Boat: According to the thinkorswim MarketWatch heat map on the thinkorswim platform, APA (APA), Devon Energy (DVN), Diamondback Energy (FANG), EOG resources (EOG), Hess (HES), Marathon (MRO), and Occidental Petroleum (OXY) were among the biggest movers in the S&P 500. These stocks belong to the Oil, Gas & Consumable Fuels industry group; whereas the other energy stocks in the S&P 500 are Energy Equipment & Services. The reason why this matters is because today’s move suggests that investors don’t see new drilling starting up yet. Without increasing the supply of oil, it may be difficult to get oil prices to fall.

The pullback in oil prices appeared to stretch these stocks like a rubber band, and today, the band was released when oil prices rose. These stocks will likely be tied to oil prices, which could mean volatility. If OPEC+ is convinced to increase production or if more oil reserves are released, these stocks could fall if oil prices fall.

Dinner Table Debate: Even though 50 million barrels would be the biggest single draw ever from the oil reserves, it’s not that much compared to the overall oil market. For example, according to Statista, OPEC+ produces about 30 million barrels per day. Another option offered by some politicians is to have U.S. oil remain in the United States by banning exports. Assuming other countries wouldn’t respond by refusing to import into the United States, this could help keep oil prices lower in the country but could hurt allies.

Another option offered by other politicians would be President Biden reversing some of the executive orders that he signed in January that greatly reduced access to drilling on federal lands and offshore. They argue that increased drilling could provide a long-term solution for ongoing oil supply issues.

Family Reunion: Looking at some of the energy futures prices, heating oil (/HO) also bounced on Tuesday, rising 2.51%, natural gas futures (/NG) rose 4.64%, and RBOB Gasoline futures (/RB) rallied 2.98%. While there’s a risk of making too much out of one day of trading, these are all areas that effect consumers directly. Low-income Americans will feel these changes at a greater scale and areas like Europe are already experiencing energy crises could get worse. If you don’t fall into these groups, you may have another reason to be grateful this week.

Good Trading, 

JJ

@TDAJJKinahan

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Key Takeaways

  • OPEC+ Defiant in the Face of the United States, Britain, China, India, Japan, and South Korea

  • Market Breadth Breaking Down Once Again 

  • Petroleum Products Bouncing: To Drill or Not to Drill

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