Easing Turkey Tensions, Bumper Home Depot Earnings Appear to Boost Market

This morning, U.S. stocks appeared poised for gains, based on equities futures trading before the opening bell, as the Turkish currency gained some footing.

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5 min read

Key Takeaways

  • Other retailers report earnings this week too

  • Retail sales numbers on tap in economic news this week

  • Crude oil rebounds on news of Saudi production cut



(Tuesday Market Open) With earnings season winding down, investors appear to be focusing more on geopolitical headlines once again. Stocks have seesawed amid worry over Turkey’s economy, with today’s action being to the upside as the nation’s currency gained ground. Strong earnings from Home Depot also appear to be helping sentiment.

This morning, U.S. stocks appeared poised for gains, based on equities futures trading before the opening bell, as the Turkish currency gained some footing. That was in contrast to Monday’s market, when U.S. investors appeared cautious as Turkey’s currency crisis continued. The Turkish currency hit a record low against the dollar on Monday but rebounded after the nation’s central bank said it would provide liquidity to the nation’s banks. 

The currency crisis in Turkey, which suffers from high inflation, comes as the U.S. has said it is increasing tariffs on Turkish steel and aluminum. That adds to trade tensions already simmering between the U.S. and key trading partners including China that have led some market watchers to worry about the effect on global economic growth.

Home Depot in Focus

Although many Wall Street companies have reported earnings, there are still some heavyweights out there. 

This morning, Home Depot (HD) reported better-than-expected earnings of $3.05 per share on revenue of $30.46 billion. For Q2, HD was expected to report adjusted EPS of $2.84 and revenue of $30 billion, according to third-party consensus analyst estimates. 

Sector Watch

The S&P 500 (SPX) energy sector was the worst performer of the day Monday as crude oil dropped on concerns over increased supply in the United States even at a time when worries about global growth have been ratcheting up amid trade concerns. Oil rebounded on Tuesday on news of a production cut from Saudi Arabia.

The market will get the latest government numbers on U.S. crude inventories on Wednesday morning with release of weekly data from the Energy Information Administration.

The information technology sector of the SPX declined only 0.15% Monday. It appears that the sector gained on help from Twitter (TWTR) after Citron Research issued a bullish forecast on the social media company. 

Figure 1: Untangled: Financial stocks (candlestick) had been weaker over the last week in part on a falling 10-year yield (purple line). However, the 10-year yield gained on Monday but financials didn’t get a lift, perhaps in part due to currency worries abroad. Data Source: S&P Dow Jones Indices, CME Group. Chart source: The thinkorswim® platform from TD AmeritradeFor illustrative purposes only. Past performance does not guarantee future results.  

Risk Perception: Monday was a bit of a mixed bag when it comes to risk perception. Sure, the Cboe Volatility Index (VIX), often called the markets’ fear gauge, rose more than 12%. But the price of gold and the 10-year Treasury, both often considered havens in times of heightened worry, declined, with gold dropping below $1,200 an ounce for the first time since January. Strength in the U.S. dollar, also a place to which investors tend to flock in times of uncertainty, appears to have contributed to gold’s fall and may have helped Treasury prices a bit. So while the headline risk gauge—the VIX—may have told one story, it appears the market didn’t buy it wholesale. It could be that some investors think that any contagion from Turkey would be muted in the U.S. We’ll have to wait and see.

Financials and Utilities: Monday’s trading produced a bit of a head scratcher. Even though Treasury yields rose, utilities also rose while the financial sector lagged. Utilities often fall in price when rates rise because those two investments are often seen as competing for capital. Meanwhile, bank stocks tend to rise along with longer-term rates because that often means banks can earn more from interest they charge on loans. But on Monday, the financial sector of the SPX fell more than 1% while the utilities sector was the best performing of all 11 SPX sectors, even though its gain was just 0.09%. Continued investor worry about a flattening yield curve and a 10-year Treasury yield that remains below 3%, as well as concerns about Turkey, may have been weighing on the financial sector. As for utilities, if investors are thinking that the 10-year yield might continue having trouble around the 3%, that could be a factor behind some of the buoyancy in the sector.

Retail Sales: This week investors get a look into the health of the U.S. retail sector both from company earnings reports and from government data. This week’s earnings reports includeWal-Mart (WMT), Macy’s (M), and Nordstrom (JWN). And on Wednesday we’ll see July retail sales figures from the Department of Commerce. Sales are expected to show a 0.1% rise, according to a consensus of economists polled by Briefing.com. While that’s still in positive territory, it would be muted compared to June’s jump of 0.5%. The U.S. consumer is one of the strongest forces driving not only U.S. economic growth, but also expansion in the global economy. So the retail sales report may be worth considering.

Good Trading, 

JJ

@TDAJJKinahan 

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Economic Calendar for this week. Source: Briefing.com
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