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Tough Talk: N. Korea Tensions Take Center Stage Even As Retail Results Pour In

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August 10, 2017

(Thursday Market Open) Attention shoppers: Big retailers report today. These closely watched earnings compete for investor attention as the U.S./North Korea standoff casts a large shadow.

Most global markets fell overnight after the war of words ramped up between the two countries, while U.S. stock futures moved lower in pre-market action. Still, let’s keep this all in perspective. The markets didn’t fall dramatically on Wednesday despite tough talk between U.S. and North Korean leaders, and we’re coming off 10 days of higher moves on the Dow Jones Industrial Average ($DJI). The markets remain near all-time highs. As much as some investors might want to see the market go straight up, there are bound to be some down days sprinkled in.

If the saber rattling between U.S. and North Korean leaders doesn’t continue, there’s a chance the market could recover, as we saw yesterday. But the fact of the matter is, today’s earnings so far haven't looked particularly good, and that could hold things back.

Shares of Macy’s (M) fell in pre-market trading despite the company beating analysts’ estimates with a $0.48 reading on earnings per share vs. the expected $0.45. Revenue of $5.55 billion eclipsed Wall Street’s average guess of $5.50 billion. Additionally, same-store sales fell less than analysts had expected. On the negative side, M delivered full-year guidance that came up shy of the Street’s expectations, and that’s what seemed to pressure the stock.

Kohl’s (KSS), which saw shares initially rise in pre-market trading after the retailer reported quarterly results that beat Wall Street analyst’s expectations, later turned lower as well. Earnings per share came in at $1.24, five cents higher than Wall Street’s projected $1.19, but revenue fell to $4.14 billion. However, that was slightly above analysts’ consensus.

The early take-away from the big-store earnings is that they’re still in the throes of figuring out how to handle online competition. The consumer is out there, but not willing to pay up. Meanwhile, big stores still have the problem of holding onto all that real estate.

Two stocks held by many TD Ameritrade clients report after today’s close: Snap (SNAP) and NVIDIA (NVDA). With SNAP, watch to see if the company has any reaction to reports in the media that Alphabet (GOOG) might come out with a competing service.

Quickly following the retail earnings early Thursday, the July Producer Price Index came in below expectations, falling 0.1%. Other data released so far this week looked pretty good for the most part, including mortgage applications, wholesale inventories and productivity. Stay tuned for the Consumer Price Index (CPI) tomorrow (see below).

Safe-haven assets like gold, silver, and bonds galloped higher amid the global tensions. The level to watch in gold is $1,300 an ounce, which it’s peeked over several times in recent months but also appears to be a technical barrier. VIX, which measures volatility, rose sharply to 12.38 early Thursday. If you’re wondering about technical support for the S&P 500 (SPX), the area to watch appears to be between 2423 and 2441, according to research firm CFRA.

Gold

FIGURE 1: HOW THINGS CHANGE.

A month ago, gold futures were wilting in the July heat even as 10-year bond yields (purple line) sat at near-term highs. The pattern looks a lot different now, with both bond prices and gold picking up buyers in a more cautious market as world events keep churning. Data source: CME Group. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.    

PPI Today; CPI Tomorrow: Right on the heels of today’s July Producer Price Index (PPI) comes the July Consumer Price Index (CPI) before Friday’s open. As with PPI, investors are likely to be looking for any signs of movement in the inflation meter, which has been stubbornly low for months even as other economic data like employment keep improving. Back in June, CPI was unchanged month over month and up just 1.6% year over year, below the Fed’s 2% target. Core CPI, which stripped out energy, rose 0.1%. This time out, Wall Street analysts expect gains of 0.2% for both headline and core CPI, according to Briefing.com.

Over in the Commodities Aisle: U.S. crude oil demand keeps pulling supplies out of storage. Last week saw stockpiles fall 6.5 million barrels, the government said. Oil prices neared $50 a barrel early Thursday, partly in reaction to falling stocks. However, there’s more to the story. Stocks of gasoline rose more than 3 million barrels as demand appeared to weaken, a bit of a head scratcher. Additionally, U.S. oil production remained near recent highs of above 9.4 million barrels a day. Stay tuned tomorrow for the weekly rig count number. We do talk a lot about oil here, but that’s because it’s such an important underlying factor for the broader economy. It bears careful watching at all times.

‘Tis An Ill Wind…Though the markets stumbled over North Korea tensions Wednesday, one set of stocks did benefit, as aerospace and defense names like Lockheed Martin (LMT), General Dynamics (GD), and Raytheon (RTN) all moved higher. Some of the worst-performers, on the other hand, were in the financial sector, which conceivably could come under pressure if concerns about international tensions continue to propel bond prices higher. Banks typically benefit from lower bond prices accompanied by rising yields. The benchmark 10-year bond, which had yielded near 2.28% after last week’s solid payrolls report, fell as low as 2.21% after U.S./North Korea tensions bubbled up.

Good Trading,
JJ
@TDAJJKinahan

Economic Calendar

FIGURE 2: THIS WEEK'S ECONOMIC CALENDAR.

Source: Briefing.com

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