Stocks Rise on Retail Earnings, Stimulus Talk
- NASDAQ Composite +1.05% Dow +1.06% S&P 500 +0.96% Russell 2000 +0.96%
- NASDAQ Advancers: 1595 / Decliners: 336
- Today's Volume (vs. Tuesday) -1.75%
- Crude $56.45 +$0.32, Gold $1500.00 -$4.60, VIX 15.71 -1.79
Market Movers
- DOE reports larger crude oil inventory draw of 2.73 million barrels vs expectation of a draw of 1.33 million barrels
- U.S. MBA’s Mortgage applications declined 0.9% last week vs +21.7% prior
- July U.S. Existing Home Sales better at 5.42 million vs. consensus 5.4 million
- June revised slightly higher to 5.29M from 5.27M
- German 30-yr bund sale fails to draw expected demand while yielding a negative rate (-0.11%)
- Reaction to earnings: TGT + 19%, PDD + 13%, LOW +11%, URBN +6%, MSGN -12%, CREE -7%, PLCE -5%
Chris’ Commentary
The markets took pause yesterday on lighter than average trading volumes. This broke a three day winning streak for the S&P 500 and Dow Jones Industrial Average. Interestingly, the S&P 500 saw back to back gains of +1% or more on Friday and Monday which was the 1st time this happened in 2019. All 11 major S&P sectors closed down for the day, though some only marginally. The lighter trading volumes are a key tell here. Trading volumes on the consolidate tape were only 5.88 billion shares which is 17% less that the yearly average and 25% less that August’s average. Lighter trading volumes are generally a sign of declining intraday market volatility.
Today, we are trading higher. President Trump has been discussing publicly the idea of future tax stimulus in the form of payroll and capital gains tax cuts. Also, a number of retailers posted better-than-expected earnings today to give that sector a boost. This plays into the theme the U.S. consumer is alive and well and that bodes well for U.S. GDP. All-in-all it's a continued risk-on day as we await the FOMC minutes from the July meeting at 2pm ET today and Fed Chairman Powell’s comments at Jackson Hole later this week.
All the major U.S. indexes are up around 1% with all 11 major S&P 500 sectors trading higher. Consumer Discretionary, Tech and Energy are the best performers all up above 1% while Utilities trail the group. Crude oil is up nearly 1% while Gold is lower for the day, but still hovering at the $1500 level. The dollar is essentially flat while the yield on the 10-yr rises to 1.57%.
President Trump is considering possible tax cuts for U.S. taxpayers as possible signs of a recession flash in the U.S. He discussed tax cuts on wages and profits from asset sales. Even though the President downplayed concerns of a recession, just having him mention it shows signs of concern. A "payroll tax is something that we think about," he told reporters, adding that he would not need Congressional approval to link capital gains taxes to inflation. "I'm not talking about doing anything at this moment, but indexing is something that a lot of people have liked for a long time."
Earnings season is essentially at an end. However, some of the largest consumer / retail names are set to report tonight and later this week. This is important for a look into the health of the consumer which is a key driver of U.S. GDP as 2/3rds of U.S. GDP is comprised of consumer spend. 470 members of the S&P 500 have reported as of this morning. The average upside beat is 4.9% for the quarter, a slight decrease from last week. The quarterly earnings growth rate also decreased to +1.75%. The sales growth rate stands at 3.63%. Companies expected to report in the next few days include JWN, LB, SNPS, HRL, GPS, CRM, INTU, ROSY, HPQ, FL, BKE and HIBB.
Sector Recap
Brian’s Technical Take
Today’s Fed minutes and its revelations about the first rate cut in twelve years are likely to have a relatively muted impact on markets not only because of the steep descent in rates on the long end of the yield curve immediately following the July 31st FOMC, but also because of the upcoming Jackson Hole meeting the next two days, and in particular Chairman Powell’s remarks on Friday.
If you recall back on July 31st, it wasn’t so much the 2pm Fed statement that led to the risk-off reaction in the equity and bond markets. That move didn’t take flight until 2:35pm, five minutes into Powell’s remarks and Q&A which included the “mid cycle adjustment” characterization. The “less dovish” read by markets was reminiscent of Powell’s (mis)communications in Q4 when on a few separate instances he spooked markets with his hawkish take on rates and the tightening cycle.
The Fed seemed to say all the right things throughout 1H’19 with their overly dovish commentary, but it has not been enough in terms of the dollar which on July 31st broke out to fresh two year highs, and the yield curve which began its inversion the week of the last rate hike in December 2018.
While the US consumer is reportedly in great shape, the global economy has stalled and in some countries is already contracting. The strong dollar and its role as the world’s reserve currency has been a significant headwind. With all eyes on Powell this coming Friday and his penchant for disappointment in his brief reign as Chairman, it will be interesting to see if he makes any attempt to walk back the “less dovish” rhetoric or some other.
The below chart plots the slope of the current inverted yield curve (red line), and the positive slope of the curve back on December 1st 2018.
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.
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