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Stocks Wobbly as Strong Retail Report Might Mean Aggressive Fed Response

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June 11, 2015

Stocks are shaky to start a new trading session, twisting flat to lower in the immediate wake of a report showing a gain in May retail sales. It’s a reading that some believe will help push the Federal Reserve toward its first rate hike since 2006 this year. Wobbly trading comes just a day after a notable rally yanked the S&P 500 (SPX) from the low end of a range that has persisted since early May. Actually, all three major averages snapped back with conviction on Wednesday, logging gains of more than 1%, pushing the Dow Jones Industrial Average (DJIA) back to positive for 2015, and landing the SPX again above the psychologically significant 2100 line (figure 1), with all 10 sectors higher.

Mid-day momentum kicked in Wednesday with news that Greece had agreed to limited economic reform, baby steps toward crawling out from under a huge debt burden. Also boosting stocks, dollar weakness prompted higher commodities prices, including a 2% gain in crude to above $61.40 a barrel, its highest level so far in 2015. Crude gave back about half of that move in action overnight, with futures last trading down about 1.2%. Gold, on a multi-session run, inched its way back toward the $1200 level. 

SPX-Tops-2100

FIGURE 1: BIG BOUNCE.

The S&P 500 (SPX) closed above the closely watched 2100 line on Wednesday, bouncing the low end of a month-plus range. Data source: Standard & Poor’s. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Retail Sales on a Roll. Sales at U.S. retailers climbed 1.2% in May and rose for the third month in a row after soggy winter results. The rise is a tad off of what Wall Street had predicted. Auto dealers and gasoline stations posted the strongest sales, but most major retail segments logged healthy gains. Ex-autos, sales rose 1%. Sales minus autos and gasoline climbed 0.7%, a trend that is strengthening. And, sales in April and March were stronger than initially reported.

Gains All Around. Greece’s Athex Composite Index gained and the rest of Europe’s equities indexes followed. Athens continued negotiations with international creditors in an effort to unlock bailout funds. The country has a 1.6 billion euro payment ($1.8 billion) due to the International Monetary Fund at the end of June and is at risk of draining all its cash unless it receives more financial aid. Asian stock markets gained after South Korea cut interest rates.

Tech Mover. Cloud-storage company Box Inc. (BO) could remain active Thursday and lend support to the broader technology space. A more than 9% gain late Wednesday followed better-than-expected quarterly results and an upbeat outlook for 2016 revenue.

Good trading,
JJ
@TDAJJKinahan

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