Bulls looked to muscle out the bears early Wednesday, indicating a mild rebound from a sharp selloff in the previous trading session. Both the Dow Jones Industrial Average (DJIA) and the S&P 500 (SPX) suffered their biggest single-day drop in some three weeks, yet the broad SPX held an important line at 2100 (figure 1).
What sparked that run for the exits? Traders finally had time to react to the Federal Reserve chief Janet Yellen’s Friday comments. By most accounts, she signaled the likelihood for an interest-rate hike yet this year. The dollar gained, giving stock investors a case of the willies, especially over a strong dollar’s sting on earnings for the quarter we’re sitting in right now.
Stock Market Not an Island. Downside pressure on stocks percolates from other markets. Corn is trading at multi-year lows, driving other crop prices lower. Crude oil is back under $58 a barrel, and bonds logged a strong performance yesterday. Now today, metals and energy stabilized, but the dollar is flexing its power yet again.
Retailers: Big Box and Blue Box. Retailers continue to dominate this week’s earnings docket. Warehouse and membership retailer Costco (COST) is projected to report fiscal Q3 earnings of $1.15 a share, according to a consensus survey by FactSet. That compares to $1.07 a share in the same quarter last year. Jeweler Tiffany (TIF) is forecast to post Q1 earnings of $0.70s a share, down from $0.97 a share a year ago.
Home Builder Revenue Miss. Toll Brothers (TOL) reported a 4.1% rise in net income for the second quarter ended April, thanks to higher contract sales and improved profit margins. But revenue was $852.6 million, down 1% from $860.4 million a year earlier and below Street expectations. Another worrisome combo of earnings beat, revenue miss. And this time for a key sector like housing.