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Can Rally Keep Going? Strong Retail Sales, Earnings Set Positive Early Tone

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November 15, 2016

(Tuesday Market Open) News lovers have an abundance of material heading into Tuesday’s session. They can choose from Fed speakers, rising oil prices, retail sales, Home Depot earnings, and continued scuttlebutt around the election and possible cabinet appointments. Markets seemed primed for another higher open amid the flurry of activity.

Retail sales jumped 0.8% in October, the government said, outperforming Wall Street analysts’ estimates of 0.6%. Taking auto sales out of the equation gives the same 0.8% rise. Home Depot’s earnings came in above expectations (see below).

At the same time, concerns about trade with China seem to be hitting the info tech sector pretty hard (see below). And bonds have taken a beating since the election, though that paused slightly early Tuesday. Yields on 10-year Treasury notes recently traded at 2.21%, down from Monday’s highs above 2.25%.

The Fed comes back into focus this week, highlighted by Fed Chair Janet Yellen’s scheduled testimony to Congress on Thursday. Before that, we get to hear from a bunch of Fed speakers today, including Boston Fed President Eric Rosengren, Fed Governor Daniel Tarullo, Fed Vice Chair Stanley Fischer and Dallas Fed President Rob Kaplan.

Rosengren said he sees a “high likelihood” of a December rate hike, according to media reports. Chances for a December hike reached about 86% early Tuesday, based on CME Group futures trading.

Another factor today could be oil, which soared nearly 3% early Tuesday amid renewed hopes for an OPEC production freeze. This followed a plummet to multi-month lows Monday down near the $42 a barrel level. Sometimes a strong oil market can support equities.

Support for the S&P 500 (SPX) remains near the 2152 level, with 2150 serving as psychological support.

S&P 500

FIGURE 1: TRUMP RALLY LOSING STEAM?

The S&P 500 (SPX), plotted through Monday on the TD Ameritrade thinkorswim® platform,remains well above last week’s lows, but seems to be flattening out a bit in the last session or two. It has yet to make a major test of resistance up around 2190 since the election, despite the rally. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

China Nerves Rattle Tech: Fears of a potential trade war with China took on extra meaning early this week, when the Global Times, a daily Chinese newspaper, wrote of possible consequences if the U.S. imposed steeper tariffs. "Large orders for Boeing planes would switch to Europe, U.S. auto sales in China would face setbacks, Apple phones would essentially be crowded out, and U.S. soybeans and corn would be eradicated from China," the paper wrote in an editorial. Shares of Apple (AAPL), fell 2%, but Boeing (BA) shares rose, as did shares of agricultural giant Archer Daniels Midland (ADM). The info tech sector is taking the biggest hit from China fears now, but watch other trade-related sectors as well.

Back Home: Early Tuesday, Home Depot (HD) beat Wall Street analysts’ consensus expectations for both earnings per share and revenue. And the company raised its full-year earnings guidance by two cents. Strength at HD can sometimes signal strength in the housing market, because homeowners may be more likely to invest in renovations if their home values are rising. However, HD and other home improvement retailers could face challenges down the road if mortgage rates start to climb due to rising interest rates, something to keep an eye on.

Get Ready For Big Earnings Day Wednesday: After getting a look at October retail sales, investors could get further sense of the retail environment Wednesday with earnings due from Target (TGT) and Lowe’s (LOW). And of course, the biggie is on Thursday, when Wal-Mart (WMT) reports. Analysts expect LOW to report earnings per share of 97 cents, up from 80 cents a year ago, according to Briefing.com. But TGT is seen at 83 cents, down from 86 cents during the same quarter last year.

Good Trading,
JJ
@TDAJJKinahan

Economic Calendar

FIGURE 2: THIS WEEK'S ECONOMIC CALENDAR.

Source: Briefing.com

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