(Friday Market Open) Can the gold hits just keep coming? If trading moves off the flat line to higher ground yet today, the most important market benchmarks may be looking at another lap at the record podium.
This morning’s government report that sales at the nation’s largest retailers were little changed in July didn’t mesh well with fairly upbeat Q2 reports from some of the biggest department-store retailers yesterday. (See below.) The Commerce Department report also did little to move the markets, which straddled the flat line in the early going. Will traders hold on going into the weekend?
A 21st Century Best
Like Olympic gold medalists, the three major benchmarks whirled their way into best-ever territory again yesterday, prodded by a confluence of economic factors that appear to be underpinning an economy scraping its way to higher ground. This summer’s series of market wins has come mostly in small increments of moves, many less than 1%. (See chart.) Is 20,000 on the Dow Jones Industrials Average (DJIA) in the offing? What about 2,200 for the S&P 500 (SPX)?
“We’re continuing to grind higher,” Stephen Carl, principal and head equity trader at Williams Capital Group, told Bloomberg. Thursday’s personal bests for the Dow, SPX and the Nasdaq Composite Index (COMP6) blotted a different watermark: the first time since Dec. 31, 1999, that all major indexes closed at fresh peaks.
That has many analysts pontificating about future rallies. Wells Fargo’s Chief U.S. Equity Strategist Gina Martin-Adams raised her projection Thursday that the SPX will climb to 2,200 in the next 12 months. Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, is calling for a DJIA “consensus one-year target price” of 20,003.93, according to his calculations. He’s been tracking Wall Street analysts’ company-level predictions of the Dow’s 30 components and that’s his latest analysis.
Remember, though, that Wall Street analysts are not soothsayers. They’re plotting numbers against history with what seems like a gazillion algorithms that may or may not be right. And then there’s the outside-the-market events that they don’t know they don’t know yet. In other words, it could be all a crapshoot.
Until then, the benchmarks are inching up in a sideways pattern that’s reminiscent of, as noted before, the dog days of summer. The SPX added 10.30 points, or 0.5%, to close at 2,185.79 while the DJIA advanced 117.65 points, or 0.6%, to settle at 18,613.31. The COMP6 rose 23.81 points, or 0.5%, to finish at 5,228.40.
What helped pushed all three indexes into that fresh, green grass? Help came from an unexpected, but, by most accounts, a welcome beat on analyst expectations from a handful of retailers. Kohl’s (KSS) and Macy’s (M), ahead of the close, turned in better-than-expected Q2 results, and M went a step further to give investors and analysts what they wanted to hear, which was a decision to close 100 stores and sell the real estate that was valued much higher than the sales and profits the stores on them were returning, according to the company. Consumer discretionary stocks logged a gain, helped by that bit of news. After the bell, Nordstrom (JWN) and Dillard’s (DDS) kept the good-news parade going. But, as one analyst notes, as encouraging as the retail news is, department stores may still be deep in the woods. (See below.)
Crude oil prices jumped on a Saudi Arabia pledge to stabilize prices—something that’s been promised before. West Texas Intermediate (WTI) settled up 4.3% at $43.49, sharply higher as freeze talks gained traction. That also helped boost the SPX’s energy sector. In the early going, WTI was heading higher again.
The Ca-Ching at Department Stores. Is the consumer spending again at department stores? That’s what a handful of big-name retailers appeared to be saying in conference calls after their Q2 earnings results. Nordstrom (JWN), Dillard’s (DDS), Macy’s (M) and Kohl’s (KSS) all turned in results that outpaced analysts’ expectations. The common theme: Sales rang up more robustly as the quarter progressed. That sets an encouraging tone heading into Q3, but RetailMetrics Chief Executive Ken Perkins is tempering the results with these comments: “While better-than-expected second-quarter earnings results from the nation’s department stores were a most-welcome development, they by no means signal that the group is out of the proverbial woods.” The foursome, he noted, is still “staring at many of the same issues that have pressured their businesses over the past few years and hastened store closures on the part of Macy’s.” Those range from a shift in spending on experiences rather than goods, and away from shopping malls and centers to e-commerce. Still, Perkins noted, positive commentary from M and JWN on apparel sales could signal a sales change ahead.
Wait, What? Retail Sales Fell Flat? That’s the word from the Commerce Department today. Sales at U.S. retailers were unchanged in July compared to June’s 0.8% increase, which was revised upward. Eight of the 12 major categories measured tumbled as auto sales surged, according to the monthly report. Excluding cars, retail sales slipped 0.3% as sales of groceries, electronics, gas, and sporting goods, for example, all sank. Did consumers forgo eating from new vehicles? Dealer-based car purchases jumped 1.1%, the most since April, according to the report.
Stop Another Fed Taper Tantrum. That’s what Wells Fargo’s Economics Group thinks is going on amid the reversal of Fedspeak in recent weeks. While Chair Janet Yellen has repeatedly said a decision to raise interest rates is data dependent, the underwhelming data may signal a stand-pat posture. But other Fed members have been offering a new outlook in recent talks.
Here’s Wells Fargo’s take: “The recent rhetoric from Fed officials seems somewhat puzzling. New York Fed President Bill Dudley, Federal Reserve Bank of Atlanta President Dennis Lockhart, and Federal Reserve Bank of Chicago President Charles Evans all noted recently that the financial markets appear to be underestimating both the timing and magnitude of the Fed’s resolve to normalize interest rates. Moreover, their comments came after the disappointing second quarter GDP numbers but before the stronger July employment data were released.
“Our read is that the Fed is engaging in a risk-management exercise designed to avoid a repeat of the taper tantrum, which short-circuited the housing recovery back in spring 2013. Back then, the markets had also become unduly complacent that the Fed would not begin to taper securities purchases until sometime in 2014 or later. Then Fed Chair Ben Bernanke hinted at a Congressional hearing that the Fed would begin this process earlier, provided that the economy continued to perform well. Financial markets were caught flat-footed by Bernanke’s comments and the ensuing short squeeze sent the yield on the 10-year note more than 100 basis points higher in just 30 days, pulling mortgage rates up.” There you have it.
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Watch @TDAJJKinahan on Periscope discussing Friday's retail sales report and previewing next week. He'll be live at noon ET today.