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Will a Mouse Take a Bite Out of Stock Market’s Upward Momentum?

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May 11, 2016

(Wednesday Market Open) Will Walt Disney (DIS) and its famous mouse prevent the market from building on Tuesday’s gains?

The exuberance that lifted stocks to two-week highs on Tuesday appeared under threat early Wednesday after weak earnings from Disney. Meanwhile, oil and overseas stock markets, both of which helped lift the U.S. market Tuesday, fizzled.

Disney reported adjusted earnings of $1.36 per share on $12.97 billion in revenue. Analysts expected earnings of $1.40 per share on $13.19 billion in revenue, according to a Thomson Reuters consensus estimate. This marked the first time in five years that the company missed earnings estimates, and shares dropped about 6 percent in after-hours trading.

Concerns about media networks, its largest segment, have weighed on Disney shares.  And sure enough, sales in that unit were about flat and missed estimates. That seemed to outweigh Disney’s big wins at the box office. Disney’s ESPN unit continues to struggle, and many thought success at the box office would help the company, but that doesn’t appear to be the case this quarter.

In other equity-related news, all of it bearish, Staples (SPLS) shares were down sharply in pre-market trading after news that the company’s planned buyout of Office Depot (ODP), had fallen through. And retailer Macy’s (M) missed quarterly sales expectations and lowered guidance early Wednesday, sending the stock lower.

Retailers continue to disappoint. This adds to a conundrum in the economy: Are these sales being replaced online? The market might get a better sense of that on Friday with the monthly retail sales report. Brick-and-mortar retailers are in a tough spot, and may face the decision of whether to shut stores and simply go online. Nordstrom (JWM) reports earnings Thursday, which could give clues as to whether the high-end shopper is out there shopping.

The weakness from retailers is a microcosm of what the Fed has to deal with. How can the Fed raise rates when it doesn’t have the consistent numbers to support that?

Oil futures traded roughly flat early Wednesday, under some pressure ahead of the weekly U.S. inventory report. The stock market continues to trade closely with oil, and stock markets in Europe and Asia turned lower Wednesday after oil prices fell.

S&P 500

FIGURE 1: EYE ON 2100

The S&P 500 (SPX), plotted through Tuesday on the TD Ameritrade thinkorswim platform, closed at a 2-week high and is now up for the month to date. The next resistance is at the psychological 2100 level. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Slight Jolt from JOLTS: Tuesday’s Bureau of Labor Statistics monthly Job Openings and Labor Turnover, or JOLTs report, on the state of hiring, didn’t really “jolt” the market too much, but there were some juicy nuggets within. The report showed a rise in job openings to 5.8 million in March, just off of last year’s all-time high, while the hiring rate edged down to 3.7 percent. Rising openings and a falling hiring rate could mean the labor market is tightening, analysts said. Also, “quits” rose in March while layoffs continued to fall. More people voluntarily leaving their jobs can sometimes be a sign of an improving economy with better job prospects. “Quits are typically voluntary separations, possibly indicating increased confidence of finding another job,” Wells Fargo said in its assessment of the report. “The rising quit rate may support wages and productivity if employees are leaving current positions to switch to jobs better matching their skills.”

Could Presidential Race Keep a Lid on Rallies? Here’s an interesting tidbit from S&P Global Market Intelligence: Even though the S&P 500 index (SPX) posted an average election year price increase of nearly 6% since 1944, the SPX recorded a decline of more than 3% whenever neither candidate was an incumbent. That’s the situation this year, of course, as was the case back in 2000, when the SPX fell 0.1% between August and October. Why the startling difference in SPX performance when no incumbent is on the ballot? Perhaps, S&P Global says, because markets hate uncertainty. Since World War II, in 80% of cases when an incumbent ran for re-election, he was re-elected, the only exceptions being Jimmy Carter in 1980 and George Bush in 1992. So an election with an incumbent running typically provides less of a sense of uncertainty than one like the current cycle.

Fed’s Kashkari’s Tweets Keep ‘Em Entertained: Though Fed Presidents typically have a staid, serious image, Neel Kashkari, President of the Minneapolis Fed, keeps it loose on his Twitter feed. His most recent tweet, titled, “Media coverage of the Fed reminds Neel Kashkari of the ‘Summer of the Shark’,” features a photo of a menacing shark about to attack. Kashkari also recently tweeted about his iPhone 5 and threw in a Seinfeld reference, saying the phone “has been at 4% for 10 min. It’s exhilarating. I feel like Kramer seeing how far he can drive on E.”

Good Trading,
JJ
@TDAJJKinahan

Economic Report Calendar

FIGURE 2: THIS WEEK'S ECONOMIC REPORT CALENDAR.

Source: Briefing.com

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