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Stock Bulls Hanging In There as Data Duds Seen Slowing the Fed

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May 14, 2015

Stocks tip higher in early action as Wall Street embraces lackluster economic data as an indication the Federal Reserve, although not backing away from a higher-rate bias, may not have to act right away.

Dull. Dull. Dull. I hate to use those words to describe a non-holiday trading day, but sometimes you have to call ‘em like you see ‘em.  Wednesday’s April retail sales report landed with a thud—and so did Macy’s (M) earnings—but the stock market shook off that fact, keeping the major averages including the S&P 500 (SPX) (figure 1) confined to a skinny range.

The big action again was in the bond market, which ultimately impacts stocks, too. Falling bond prices are pushing up market interest rates and I don’t see much to limit the bond market’s volatility just now.  The bearish mindset there is fixated on the risk that the Federal Reserve could tighten monetary policy (aka raise interest rates) this year even in the face of worsening economic data. Today’s news offerings may not offer much inspiration either:  lackluster retail earnings and a tame inflation report. But stock bulls may declare another range-bound day as victory especially considering recent patterns.

FIGURE 1: THAT’S TIGHT. Major stock averages, including the S&P 500 (SPX), fell with the bond market again but bulls argue it could have been worse as retail-sector data disappointed. Data source: Standard & Poor’s. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Tough Season for Retail. Kohl’s (KSS) is battered in early Thursday trading after the discount-department store reported sales that missed Wall Street’s Q1 expectations, although it beat on profits.  Nordstrom (JWN) is also due with its results Thursday and Street analysts think the higher-end chain will report a 1% drop in earnings from a year ago. J.C. Penney (JCP) narrowed its Q1 loss compared to a year ago owed to lower costs and an uptick in sales. The recently overhauled (again) department store chain raised its projections for the year, saying it now expects sales at established stores to increase 4% to 5%, compared with its earlier view of 3% to 5%, and gross margin to improve 100 to 150 basis points, up from 50 to 100 basis points, previously. As for a specialty retailer, Children’s Place (PLCE) beat the Street view with Q1 results and lifted its full-year earnings guidance.

Tech Chimes In, Too. Cisco (CSCO) is an early decliner a day after the network-equipment giant posted improved revenues but failed to inspire investors who’ve keyed in on CSCO’s struggles to deliver video equipment that cable companies use. Applied Materials (AMAT) is on tap with earnings after the closing bell.

Inflation, Where? U.S. producer prices fell a seasonally adjusted 0.4% in April, a report early Thursday showed. It was the seventh decline in the last nine months, mainly because of lower gasoline and food costs. Core producer prices excluding volatile categories food, energy, and trade rose 0.1% last month with costlier drugs the main driver. Over the past year, producer prices have fallen a record 1.3% on an unadjusted basis; the core rate has risen 0.7% in the same span.

Good trading,
JJ
@TDAJJKinahan

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JJ Kinahan

JJ began his career in 1985 as a Chicago Board Options Exchange...

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