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Equities Erase Losses, But Retailers Issue Guidance Warnings


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Thursday, January  10 , 2019, 12:45 PM, EST
  • NASDAQ Composite -0.04%    Dow +0.03%  S&P 500 -0.05% Russell 2000 -0.09%
  • NASDAQ Advancers: 1115    Decliners: 1176
  • Today's Volume (Vs Wednesday) -14.7%
  • Crude  $52.21 -$0.15 ,  Gold $1289.20 -$2.80, VIX 20.23 +0.25

Market Movers

  • China's factory inflation slowed sharply in December, weakest level since 2016
  • Initial jobless claims inline at 216,000
  • Continuing jobless claims better at 1.722 million
  • Retail names mixed to lower on sales/guidance releases
  • President threatens to declare national emergency over border security

 Chris's Commentary

Even though the markets opened lower today, they are now trading flat to higher from yesterday's close. This morning's pullback was not sharp. The S&P 500 is coming off one of the biggest 10 day rallies since 2009 and if the market can rally this afternoon, can extend to an eleventh. A pause in the near term should be unexpected, if not welcome, considering the positive price action we have seen in the New Year.

Retail names are part of the pause today as a number of guidance warnings and comps reports are either in-line or below expectation. The macro data is decent with low unemployment numbers still the norm. The government shutdown, while unfortunate and sad, is not a near term overhang here, yet.

Currently 5 of the 11 S&P 500 Sectors are in the green. Industrials, Staples and Utilities all up about 0.3% while Consumer Discretionary, especially Retail, drags on the index by 0.4%. Crude oil finally gives pause trading lower by 0.5%. Gold also trades lower while the dollar moves higher. The yield on the 10-yr is nearly flat at 2.7153%.

Legendary investor Jeff Vinik , owner of the Tampa Bay Lightning (NHL) and minority owner of the Boston Red Sox, was on CNBC this morning announcing the relaunch of his fund which he shut down 6 years ago. Mr. Vinik is positive on the US economy. He discussed market volatility and the opportunity it presents for longer term, fundamental investing. While stating, "I think economic conditions in this country are good and likely to stay that way secularly over the next 10, 15 years. Inflation is low. We have disruption that is ongoing. We have competition. Wage inflation is ticking up a bit. You put that together, when you look out ten years, that's a great environment for stocks. There will be bear markets and corrections. Maybe we're in the middle of one now, but it's a good long-term outlook."

Unemployment numbers released by the U.S. Department of Labor continue to show demand in the U.S. Reported Initial Jobless Claims were slightly lower at 216,000 vs polled expectations of 226,000, which is 17,000 fewer claims that the previous week's revised report. Reported Continuing Claims were also slightly less than expected at 1.722 million claims vs estimates of 1.740 million. Continuing claims were revised slightly higher last week to 1.750 million from 1.740 million.

The FOMC minutes were released yesterday. The release was preceded by a significant amount of Fed Speak, which helped clarify the Chairman's comments, post December rate-hike, which helped spark this current market rally. The minutes disclosed that they will not raise rates at the January meeting and probably not at the March meeting. The minutes disclosed that, while the Fed is absolutely data dependent they are also market dependent, as they referenced concern over the Q4'18 sell-off.

As stated in the minutes, concerns over escalating trade tensions, global growth prospects, and the sustainability of corporate earnings growth were among the factors that appeared to contribute to a significant drop in U.S. equity prices. The declines were largest in the technology and retail sectors. One-month option-implied volatility on the S&P 500 index- the VIX-increased over the period and corporate credit spreads widened, consistent with the selloff in equities." Look for more Fed Speak this week on this topic.

Sector Recap

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Brian's Technical Take

Retail stocks are weighing on the market following a string of disappointing holiday sales reports which may indicate tougher times ahead for the consumer and the industry in 2019.

The S&P Retail ETF (ticker XRT), which replicates the S&P Retail Index and its 95 members, declined 28% in Q4.  Over the last two weeks the XRT rebounded more than 17% to yesterday's high, but stalled right at the 50-day simple moving average, now 44.56,  which it has proven to be sensitive to on numerous occasions over the last twelve months (see arrows on below chart).

Today the XRT gapped down 4.2% on the open, however it is showing some resilience by clawing back more than two percentage points.  That said a considerable amount of technical damage was inflicted in Q4 and the recent two week rebound has not yet proven itself to be anything more than a bear market rally.   At this time the trend of lower highs and lower lows remains in place.

On a positive note, the December low came within 1% of the lows made in both 2016 and 2017.  Looking ahead it is very plausible that THE low for this correction has been made given the near-test of this multi-year support.  The path ahead is likely to be quite choppy over the near to intermediate term, particularly with the ongoing government shutdown.  While today's sales data was certainly disappointing, the industry has already been in deep bear market territory.  Once could say price appears to have led fundamentals.

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Politics continue to dominate headlines and are providing a sideshow to the potential rally we have budding here in the markets. If both sides of the aisle can't reach across to end this governmental shut down, it could end this move. The overall economic data is good so far, but folks without paycheck are not. US GDP is consumer focused and if you don't have money, you ain't going to spend. And that will impact the market.

Nasdaq's Market Intelligence Desk (MID) Team includes:

Charles Brown is Associate Vice President on The Market Intelligence Desk with over 20 years of equity capital markets experience. Charlie has extensive knowledge of equity trading on both floor and screen based marketplaces. Charlie assists with the management of The Market Intelligence Desk and works with Nasdaq listed companies providing them with insightful objective trading analysis.

Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.

Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.

Brian Joyce, CMT is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Before joining Nasdaq Brian spent 16 years as an institutional trader executing equity and options orders for both the buy side and sell side. He also provided trading ideas and wrote technical analysis commentary for an institutional research offering. Brian focuses on helping Nasdaq's Financial, Healthcare and Transportation companies, among others, understand the trading in their stock. Brian is a Chartered Market Technician (CMT).

Michael Sokoll, CFA is Associate Vice President on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.




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