Cross-Country Meet: Fed in Jackson Hole As China Trade Talks Continue in D.C.

There’s a lot on the agenda today as the Fed symposium in Jackson Hole begins and trade talks between the U.S. and China have resumed. Earnings are winding down, but retail sector results continue to look strong.

5 min read

Key Takeaways

  • Eyes turn toward Fed’s Jackson Hole Conference with Powell Speech On Tap Tomorrow

  • China/U.S. Trade Talks Also in Focus As Negotiations Resume After Two-Month Gap

  • Retail Earnings Continue to Impress With Big Revenue Gains For Many Companies

(Thursday Market Open) As Fed officials and other dignitaries gather in Jackson Hole for an annual symposium, attention also turns toward U.S. trade talks with China. Headlines from either of these events could possibly sway the market one way or the other Thursday, and there was a mixed tone as the day began.

Even as trade delegates from China and the U.S. met in Washington, both countries slapped new tariffs on $16 billion of each other’s goods Thursday.

On days like this, an element called “headline risk” sometimes rears its head. No one knows whether a Fed official might say something market-moving in an interview in Wyoming, or whether some sort of progress or lack of progress from the trade talks might filter through. For long-term investors, it’s once again a time to consider not letting minute-to-minute market fluctuations steer you away from your goals. People who sold earlier this week during a flurry of political headlines out of Washington, D.C., for instance, might be regretting that now (see more below).

As the trade talks began Wednesday after a gap of more than two months, multinational stocks in the Dow Jones Industrial Average ($DJI) including Caterpillar (CAT) and Boeing (BA) fell slightly. Companies like these, with big stakes in trade, that have been kind of a barometer for the ups and downs of the U.S./China trade tiff over the last six months. So consider keeping an eye on them for possible hints. Meanwhile, the Russell 2000 (RUT) index of small-cap stocks set a new all-time high yesterday, maybe in part because some investors believe those stocks have better insulation from the trade winds. The Nasdaq (COMP) has had a five-day winning streak.

Few Surprises From Fed Minutes

The Fed’s minutes from its meeting earlier this month came out Wednesday, but it was hard to find much in there that most investors didn’t already know. The news headlines focused on the Fed’s worries about possible trade wars hurting the economy, something that basically repeated what Fed Chair Jerome Powell had said in testimony to Congress earlier this summer.

In its meeting deliberations, the Fed also discussed removing the term “accommodative” from future policy statements, which could be mildly interesting if it happened but really is more of a semantics issue than anything else. The Fed has been getting less accommodative since late 2015, when it began raising rates. There’s no sign of the Fed moving toward a more accommodative stance anytime soon. There was nothing in the minutes, really, that would indicate any departure from better than 95% odds (according to CME Group futures) of another 25-basis point rate hike at next month’s meeting.

In one of the first interviews from Jackson Hole, Kansas City Fed President Esther George told CNBC she thinks the U.S. could see 3% gross domestic product (GDP) growth for the full year. She called that “well above what the economy can operate at in a steady state” and doesn’t think it can continue for multiple quarters. She also says she’s not forecasting “much higher” inflation than current levels but does see it going higher. 

The symposium highlight tomorrow is a speech by Fed Chair Jerome Powell.

Techs Plow Back

Looking at Wednesday’s market action, some of the tech stocks that plunged after disappointing earnings appear to be winning back some love this week. That looked apparent Wednesday as shares of Nvidia (NVDA) and Netflix (NFLX) both helped lead info tech to gains. Meanwhile, some of the more “defensive” stocks like telecoms, staples, and utilities turned lower as a more “risk-on” attitude appeared to prevail. 

Some of the pressure on dividend-earning stocks Wednesday came as Treasury note prices continued to rise, sending yields lower. That could be a sign that some investors, at any rate, see yields in Treasuries as a bit more enticing than traditional dividend stocks even with rates relatively low. The average SPX dividend yield is hovering around 1.8%, vs. just above 2.8% for 10-year Treasury notes. Speaking of which, there’s likely some technical support at 2.8% for the 10-year, and if that’s breached some analysts think it could cause even more yield losses. The 10-year yield hasn’t spent much time under 2.8% since spring.

Retailers On Target

Meanwhile, retail got a another blast of positive earnings news this week as shares of Target (TGT) and Lowe’s (LOW) both jumped Wednesday. Investors seemed enthused about new leadership at LOW and the company’s plans to close underperforming stores, while TGT shares appeared to get a lift from solid online sales growth of 41%. 

Revenue for both companies looked impressive, and so did earnings per share. TGT talked about using stores as online “fulfillment centers,” and that appeared to be what many Wall Street investors wanted to hear. TGT is putting a stake in the ground and wants to be known for its online business, illustrated by the 41% jump, which compared with a 32% online rise a year earlier. Meanwhile, same-store sales for TGT saw the best gains in 13 years, up more than 6%.

Also, Alibaba (BABA) shares climbed 3% in pre-market trading Thursday after the company reported a 61% revenue rise for its core commerce business (which includes its online shopping sites) in its fiscal Q1. Results there looked strong overall. In addition, Children’s Place (PLCE) raised guidance. L Brands (LB) lowered guidance, which was a bit disappointing, but generally, strong earnings from retail continue.

One message investors might be getting from retailers is that people are coming in the doors and clicking on the sites. If you’re a retailer and you’re not doing well in this climate, it’s probably going to raise some questions.

Another interesting note today was a Reuters report that Saudi Arabia has called off plans for the domestic and international listing of state oil giant Aramco, billed as the biggest stock flotation in history. Reuters cited four “senior industry sources.” Other reports said the country is still committed to taking the company public, however, and will do so when market conditions improve. It’s a bit of a mystery what that might mean, with U.S. stocks near record highs and crude having a good week, but consider keeping an eye out for more possible developments from the energy sector.

FIGURE 1: Volatility Jump Proves Fleeting: The VIX popped higher late Tuesday in part on political news out of Washington, D.C., but quickly retreated in the early hours Wednesday and stayed relatively low throughout the day, as this one-day chart shows. Meanwhile, the S&P 500 (purple line) which initially fell after those Tuesday headlines, clawed back from early lows Wednesday. Data Source: Cboe, S&P Dow Jones Indices. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results. 

Value Check: Earnings season is wrapping up with earnings per share gains of well above 20% for S&P 500 (SPX) companies. Even with that factored in, however, stock values remain relatively high compared to recent history. For instance, the forward price-to-earnings (P/E) ratio on the SPX stood at 17.62 as of the end of last week, according to Dow Jones. That compares with the 10-year average of 14.4. That may make stocks sound expensive, but keep a couple things in mind. First, that 10-year average P/E includes the P/E during the 2008-09 recession, when stocks fell to 12-year lows and P/E values sank as well. By a year or two from now, the 10-year average will likely be higher once those low recession era P/Es fall by the wayside. That doesn’t change the price of stocks now, but does put things in perspective with relation to historic values. Another thing to consider is that forward P/Es have come down over the last year from above 18. So are stocks expensive? It might be a judgment call.

Seeking Clues: When legal issues for President Trump’s former associates grabbed headlines Tuesday afternoon, stocks took a minor hit, but there wasn’t much response from Treasury notes, volatility, or gold, and that might have ended up being significant in how the market ultimately moved. When people didn’t embrace fixed income, bonds or gold in a big way after the news, it seemed to indicate that for many investors, the headlines weren’t enough to raise much fear. By early Wednesday, stocks began to see mild gains and VIX—the market’s most closely watched “fear index”—retreated.

There’s a possible lesson here for investors. Arguably, one of the biggest mistakes is to make investment decisions based not on what’s actually happening but instead on what you think you might see. In this case, if you think the political issues might lead to a bigger story and a possible sell-off, that’s fine, but there’s no sense throwing in the towel if the rest of the market doesn’t seem to see things that way. You didn’t see stocks get hammered or people come for volatility, bonds or gold, so the stock selling ran out of momentum because the cavalry didn’t come behind it. The lesson? Watch those other indicators—Treasuries, gold, and volatility—for insight into possible stock market action. This week, they ended up providing a big clue.

Durables Up Next: The pick of the small data litter this week might be durable orders, due out Friday morning. After a 1% rise in June, Wall Street analysts expect a 0.6% decline in July, according to However, if the volatile transportation sector is stripped out, analysts see a rise of 0.4%. Remember, car sales slumped almost across the board in July to near one-year lows on a seasonally-adjusted basis, but that weak reading needs to be taken in context and separated from the rest of the durables. Orders and shipments for nondefense capital goods, excluding aircraft, were up 0.6% and 1.0% in June, and those are probably the numbers to watch for in July’s report. Continued strength there, if we see it, might play into analysts’ expectations for Q3 gross domestic product (GDP) growth.

Good Trading, 



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