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Market Update

New Concern for Stock Investors? Housing-Sector Inflation

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August 19, 2015

Early stock indicators point lower, remaining there after a report showed U.S. consumer prices edged up marginally last month but included a jump in housing costs that could help explain limited spending elsewhere. Expensive shelter also raises some concern for inflation flares.

As for that elusive consumer, they did shop at Target. Target’s (TGT) upbeat earnings and guidance renewed hope for consumer spending. Target’s release followed mixed earnings from Home Depot (HD), which did well, and Walmart (WMT), which disappointed, on Tuesday. The consumer remains a big question mark for investors and the Federal Reserve. In fact, the stock market’s major focus is likely to stay fixed on the mid-afternoon release of the Fed’s July meeting minutes. Listless trading could continue until then.

chart-S&P-500

FIGURE 1: FORMIDABLE LINE.

The broad S&P 500 (SPX) finished just below the closely watched 2100 line, an area that has largely capped a period of consolidation for the broad index. One of the interesting things about Tuesday’s performance: 9 of the 10 S&P 500 (SPX) sectors closed lower on the day. Data source: Standard & Poor’s. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

CPI Tame, But Not Housing. The consumer price index (CPI) rose a negligible 0.1% in July to mark the smallest increase in three months. Yet the cost of housing, the largest expense for most Americans, continued to rise. In this report, the price of shelter posted its biggest increase in more than eight years, up 0.4% in July. And housing expenses have climbed 3.1% in the past 12 months, the largest annual increase since 2008. Excluding food and energy, so-called core consumer prices also advanced 0.1% in July, about in line with Street expectations. Prices for clothes and medical care also rose.

Fed Minutes On Tap. The highlight of today will likely be the release of Fed July meeting minutes at 2 p.m. Eastern. This will likely be an interesting release on many levels. Traders want hints on interest rate timing but especially a sign of Fed sensitivity to China’s currency juggling and growth slowdowns throughout the world. And now, of course, a spotty inflation reading.

Raised Guidance at Target. Target Corp. (TGT) lifted its profit outlook for the year after beating Street expectations with Q2 results. The big-box retailer logged its fourth straight quarter of same-store sales growth and has been under renewed scrutiny as new management cleans up from a security breach and an expensive Canada exit. Target has also shored up its focus on digital sales as it competes with Amazon.com (AMZN) and others. TGT now expects earnings of $4.60 to $4.75, compared with its prior guidance of $4.50 to $4.65 a share. For the current quarter, Target forecasts earnings of $0.79 to $0.89 a share. Analysts polled by Thomson Reuters had forecast $0.86 a share.

Good trading,
JJ
@TDAJJKinahan

FIGURE 2: ECONOMIC AGENDA.

This week’s U.S. economic report calendar. Source: Briefing.com

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