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Market Update

Holiday Optimism Props Up U.S. Stocks, Defying Global Drop

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November 27, 2015

Early action in U.S. stocks pointed up this Black Friday, as thin volume with potential spurts of volatility colors a shortened trading session. Markets will close at 1 p.m. Eastern, with no economic data due for release.

U.S. markets looked to buck the negative tone that gripped most international markets. The genesis of that drop formed in China, where stock regulators launched investigations into two major Chinese brokerages over suspected violations of securities rules. Asian stock declines pulled European stock averages off three-month highs.

But the tone is different here. For now. For the abbreviated week, the Dow Jones Industrial Average ($DJI) was on track to rise 0.9%, and the S&P 500 (SPX) was in line for a 0.5% advance. The NASDAQ Composite (COMP) was on track for a 1.2% weekly rise.

While overseas ripples can often carry to U.S. trading, Wall Street is fixed on domestic action as it sizes up the shopping climate of Black Friday and Cyber Monday. These two well-publicized days could set the tone for the entire holiday buying season. Wall Street is already somewhat skeptical for the overall health of spending this year following some warnings from retailers in the latest round of earnings reports.

All told, the National Retail Federation (NRF) has projected a 3.7% year-over-year growth rate for Black Friday, but that’s slower than last year’s 4.1% growth rate. The NRF forecasted that overall online holiday sales will increase between 6% and 8%—to as much as $105 billion—during the months of November and December from that period last year. For some retailers, the holiday season can represent as much as 30% of annual sales, the NRF said.

At least two retailers were working the media channels Thursday and Friday to dispel big worries about spending.

Wal-Mart Stores (WMT) shares could see early action after the company reported a smooth start to its early Black Friday launch. "Tens of millions of customers visited our digital and physical aisles to pick up video games and systems, televisions, movies and toys, many of the top items sold both on Walmart.com and in stores," Steve Bratspies, chief merchandising officer, Wal-Mart U.S., said in a statement. And Target Corp. (TGT) said in a release that electronics sales helped drive online traffic on Thanksgiving, resulting in what the company said was its biggest day ever for online sales.

SPX stock chart

FIGURE 1: 2100 LOOMS.

The S&P 500 (SPX), charted through Wednesday on the new-look thinkorswim® platform, had so far been contained below the psychologically significant 2100 line over recent sessions. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Big Drop in China. Chinese stock averages tumbled Friday amid financial media reports of regulator investigations into two major Chinese brokerages over suspected trading violations. The Shanghai Composite Index fell 5.5% to 3,436.30 on Friday, for the largest daily percentage loss since Aug. 18. The losses wiped out most of the Shanghai’s gains this month and the index remains down 38% from a June peak. Still, the benchmark index is up 14% from its August low. Hong Kong’s Hang Seng shed 1.6% on Friday, leaving it down 2.8% for the week.

Commodities Roundup. Oil prices fell early on Friday, pressured by a stronger dollar and the cloud of global oversupply, with persistent Middle East tensions so far having limited impact in driving up prices. London-traded Brent crude was down around 1.1% at $44.94 a barrel. On the New York Mercantile Exchange, West Texas Intermediate futures fell 2% to $42.17 a barrel in thin holiday conditions. Although geopolitical tensions, especially after Turkey shot down a Russian jet along the Syrian border, pushed prices up earlier this week, that move proved to have little traction. Industry analysts said there is little indication so far that the latest turmoil in the Middle East is affecting oil supply.

DIS: Tuning Out? Walt Disney (DIS) shares may be active after the media giant said in a regulatory filing that its ESPN sports network lost 3 million subscribers within one year. Several industry analyst notes on DIS have featured ESPN. The network has been subject to increased attention as more television watchers leave cable behind.

Good Trading,

JJ

@TDAJJKinahan

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