Retail Sales For June Provide An Early Boost, But Bond Yields Mostly Calling The Shots

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The first week of earnings season wraps up with major indices closely tracking the bond market in Wall Street’s version of “follow the leader.” Earnings absolutely matter, but right now the Fed’s policies are maybe a bigger influence. In the short-term the Fed is still the girl everyone wants to dance with.

Lately, you can almost guess where stocks are going just by checking the 10-year Treasury yield, which often moves on perceptions of what the Fed might have up its sleeve. The yield bounced back from lows this morning to around 1.32%, and stock indices climbed a bit in pre-market trading. That was a switch from yesterday when yields fell and stocks followed suit. Still, yields are down about six basis points since Monday, and stocks are also facing a losing week.

It’s unclear how long this close tracking of yields might last, but maybe a big flood of earnings due next week could give stocks a chance to act more on fundamental corporate news instead of the back and forth in fixed income. Meanwhile, retail sales for June this morning basically blew Wall Street’s conservative estimates out of the water, and stock indices edged up in pre-market trading after the data.

Headline retail sales rose 0.6% compared with the consensus expectation for a 0.6% decline, and with automobiles stripped out, the report looked even stronger, up 1.3% vs. expectations for 0.3%. Those numbers are incredibly strong and show the difficulty analysts are having in this market. The estimates missed consumer strength by a long shot. However, it’s also possible this is a blip in the data that might get smoothed out with July’s numbers. We’ll have to wait and see.

Caution Flag Keeps Waving

Yesterday continued what feels like a “risk-off” pattern that began taking hold earlier in the week, but this time Tech got caught up in the selling, too. In fact, Tech was the second-worst performing sector of the day behind Energy, which continues to tank on ideas more crude could flow soon thanks to OPEC’s agreement.

We already saw investors embracing fixed income and “defensive” sectors starting Tuesday, and Thursday continued the trend. When your leading sectors are Utilities, Staples, Real Estate, the way they were yesterday, that really suggests the surging bond market’s message to stocks is getting read loudly and clearly.

This week’s decline in rates also isn’t necessarily happy news for Financial companies. That being said, the Financials fared pretty well yesterday, with some of them coming back after an early drop. It was an impressive performance and we’ll see if it can spill over into Friday.

Energy helped fuel the rally earlier this year, but it’s struggling under the weight of falling crude prices. Softness in crude isn’t guaranteed to last—and prices of $70 a barrel aren’t historically cheap—but crude’s inability to consistently hold $75 speaks a lot. Technically, the strength just seems to fade up there. Crude is up slightly this morning but still below $72 a barrel.

Losing Steam?

All of the FAANGs lost ground yesterday after a nice rally earlier in the week. Another key Tech name, chipmaker Nvidia (NVDA), got taken to the cleaners with a 4.4% decline despite a major analyst price target increase to $900. NVDA has been on an incredible roll most of the year.

This week’s unexpectedly strong June inflation readings might be sending some investors into “flight for safety” mode, though no investment is ever truly “safe.” Fed Chairman Jerome Powell sounded dovish in his congressional testimony Wednesday and Thursday, but even Powell admitted he hadn’t expected to see inflation move this much above the Fed’s 2% target.

Keeping things in perspective, consider that the S&P 500 Index (SPX) did power back late Thursday to close well off its lows. That’s often a sign of people “buying the dip,” as the saying goes. Dip-buying has been a feature all year, and with bond yields so low and the money supply so huge, it’s hard to argue that cash on the sidelines won’t keep being injected if stocks decline.

Two popular stocks that data show have been popular with TD Ameritrade clients are Apple (AAPL) and Microsoft (MSFT), and both of them have regularly benefited from this “dip buying” trend. Neither lost much ground yesterday, so if they start to rise today, consider whether it reflects a broader move where investors come back in after weakness. However, one day is never a trend.

Reopening stocks (the ones tied closely to the economy’s reopening like airlines and restaurants) are doing a bit better in pre-market trading today after getting hit hard yesterday.

In other corporate news today, vaccine stocks climbed after Moderna (MRNA) was added to the S&P 500. BioNTech (BNTX), which is Pfizer’s (PFE) vaccine partner, is also higher. MRNA rose 7% in pre-market trading.

Strap In: Big Earnings Week Ahead

Earnings action dies down a bit here before getting back to full speed next week. Netflix (NFLX), American Express (AXP), Johnson & Johnson (JNJ), United Airlines (UAL), AT&T (T), Verizon (VZ), American Airlines (AAL) and Coca-Cola (KO) are high-profile companies expected to open their books in the week ahead.

It could be interesting to hear from the airlines about how the global reopening is going. Delta (DAL) surprised with an earnings beat this week, but also expressed concerns about high fuel prices. While vaccine rollouts in the U.S. have helped open travel back up, other parts of the globe aren’t faring as well. And worries about the Delta variant of Covid don’t seem to be helping things.

Beyond the numbers that UAL and AAL report next week, the market may be looking for guidance from their executives about the state of global travel as a proxy for economic health. DAL said travel seems to be coming back faster than expected. Will other airlines see it the same way? Earnings are one way to possibly find out.Even with the Delta variant of Covid gaining steam, there’s no doubt that at least in the U.S, the crowds are back for sporting events.

For example, the baseball All-Star Game this week was packed. Big events like that could be good news for KO when it reports earnings. PepsiCo (PEP) already reported a nice quarter. We’ll see if KO can follow up, and whether its executives will say anything about rising producer prices nipping at the heels of consumer products companies.

Confidence Game: The 10-year Treasury yield sank below 1.3% for a while Thursday but popped back to that level by the end of the day. It’s now down sharply from highs earlier this week. Strength in fixed income—yields fall as Treasury prices climb—often suggests lack of confidence in economic growth.

Why are people apparently hesitant at this juncture? It could be as simple as a lack of catalysts with the market now at record highs. Yes, bank earnings were mostly strong, but Financial stocks were already one of the best sectors year-to-date, so good earnings might have become an excuse for some investors to take profit. Also, with earnings expectations so high in general, it takes a really big beat for a company to impress.

Covid Conundrum: Anyone watching the news lately probably sees numerous reports about how the Delta variant of Covid has taken off in the U.S. and case counts are up across almost every state. While the human toll of this virus surge is certainly nothing to dismiss, for the market it seems like a bit of an afterthought, at least so far. It could be because so many of the new cases are in less populated parts of the country, which can make it seem like a faraway issue for those of us in big cities. Or it could be because so many of us are vaccinated and feel like we have some protection.

But the other factor is numbers-related. When you hear reports on the news about Covid cases rising 50%, consider what that means. To use a baseball analogy, if a hitter raises his batting average from .050 to .100, he’s still not going to get into the lineup regularly because his average is just too low. Covid cases sank to incredibly light levels in June down near 11,000 a day, which means a 50% rise isn’t really too huge in terms of raw numbers and is less than 10% of the peaks from last winter. We’ll be keeping an eye on Covid, especially as overseas economies continue to be on lockdowns and variants could cause more problems even here. But at least for now, the market doesn’t seem too concerned.

Dull Roar: Most jobs that put you regularly on live television in front of millions of viewers require you to be entertaining. One exception to that rule is the position held by Fed Chairman Jerome Powell. It’s actually his job to be uninteresting, and he’s arguably very good at it. His testimony in front of the Senate Banking Committee on Thursday was another example, with the Fed chair staying collected even as senators from both sides of the aisle gave him their opinions on what the Fed should or shouldn’t do. The closely monitored 10-year Treasury yield stayed anchored near 1.33% as he spoke.

Even if Powell keeps up the dovishness, you can’t rule out Treasury yields perhaps starting to rise in coming months if inflation readings continue hot and investors start to lose faith in the Fed making the right call at the right time. Eventually people might start to demand higher premiums for taking on the risk of buying bonds. The Fed itself, however, could have something to say about that.

It’s been sopping up so much of the paper lately that market demand doesn’t give you the same kind of impact it might have once had. That’s an argument for bond prices continuing to show firmness and yields to stay under pressure, as we’ve seen the last few months. Powell, for his part, showed no signs of being in a hurry yesterday to lift any of the stimulus.

TD Ameritrade® commentary for educational purposes only. Member SIPC.

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I am Chief Market Strategist for TD Ameritrade and began my career as a Chicago Board Options Exchange market maker, trading primarily in the S&P 100 and S&P 500 pits. I’ve also worked for ING Bank, Blue Capital and was Managing Director of Option Trading for Van Der Moolen, USA. In 2006, I joined the thinkorswim Group, which was eventually acquired by TD Ameritrade. I am a 30-year trading veteran and a regular CNBC guest, as well as a member of the Board of Directors at NYSE ARCA and a member of the Arbitration Committee at the CBOE. My licenses include the 3, 4, 7, 24 and 66.

Source: Retail Sales For June Provide An Early Boost, But Bond Yields Mostly Calling The Shots

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Critics:

Retail is the process of selling consumer goods or services to customers through multiple channels of distribution to earn a profit. Retailers satisfy demand identified through a supply chain. The term “retailer” is typically applied where a service provider fills the small orders of many individuals, who are end-users, rather than large orders of a small number of wholesale, corporate or government clientele. Shopping generally refers to the act of buying products.

Sometimes this is done to obtain final goods, including necessities such as food and clothing; sometimes it takes place as a recreational activity. Recreational shopping often involves window shopping and browsing: it does not always result in a purchase.

Most modern retailers typically make a variety of strategic level decisions including the type of store, the market to be served, the optimal product assortment, customer service, supporting services and the store’s overall market positioning. Once the strategic retail plan is in place, retailers devise the retail mix which includes product, price, place, promotion, personnel, and presentation.

In the digital age, an increasing number of retailers are seeking to reach broader markets by selling through multiple channels, including both bricks and mortar and online retailing. Digital technologies are also changing the way that consumers pay for goods and services. Retailing support services may also include the provision of credit, delivery services, advisory services, stylist services and a range of other supporting services.

Retail shops occur in a diverse range of types of and in many different contexts – from strip shopping centres in residential streets through to large, indoor shopping malls. Shopping streets may restrict traffic to pedestrians only. Sometimes a shopping street has a partial or full roof to create a more comfortable shopping environment – protecting customers from various types of weather conditions such as extreme temperatures, winds or precipitation. Forms of non-shop retailing include online retailing (a type of electronic-commerce used for business-to-consumer (B2C) transactions) and mail order

Airlines Will Play Key Role In The Distribution of COVID-19 Vaccines

The airline industry will play a crucial role delivering coronavirus vaccines worldwide after pharmaceutical companies like Pfizer (PFE) win approval for their pandemic fighting inoculations. “This is sort of an all hands on deck for distribution,” Cowen Managing Director and senior research analyst Helane Becker told Yahoo Finance Live.

The International Air Transport Association (IATA) recently urged governments worldwide to prepare for vaccine delivery. “Air cargo plays a key role in the distribution of vaccines in normal times through well established global time and temperature sensitive distribution systems.”

However, IATA cautions that “delivering billions of doses of vaccine to the entire world efficiently will involve hugely complex logistical and programmatic obstacles” such as building refrigeration storage units.

Pfizer announced earlier this week that its experimental vaccine, which proved 90% effective at preventing COVID-19 in recent trials, must be stored at sub-zero temperatures.

An airborne armada

Airlines like New York-based Atlas Air Worldwide Holdings (AAWW) will be among the global airborne armada eventually shipping billions of doses of vaccine, according to Becker. The cold storage requirements make it difficult.

“This is going to be one of the biggest challenges for the transportation industry,” Michael Steen, chief commercial officer at Atlas Air told the Wall Street Journal last month.

Atlas Air has the largest fleet of 747 freighters in the world but that alone won’t be enough. Becker said Atlas Air, FedEx (FDX) and United Parcel Service (UPS) will all be enlisted to deliver vaccines.

“UPS has the largest freezer farms I think in the world. They’ve got one big one at Louisville, Kentucky, which is their US Air hub, and they have one in the Netherlands,” which Becker said prepares them for the upcoming distribution task.

UPS (UPS) stock is up 42% year-to-date. FedEx (FDX) is up 77% and Atlas Air (AAWW) is up 87%. “We think Atlas has legs, the stocks really performed well,” Becker said.

IATA said the job ahead is enormous. “Just providing a single dose to 7.8 billion people would fill 8,000 747 cargo aircraft.”

U.S. carriers shipped 58,000 tons of cargo a day before the pandemic and passenger airlines like American Airlines (AAL) and United Airlines (UAL) will be needed, according to Becker. “American and United also have cold storage facilities. American in Philadelphia and United in New York, so they’ll be able to participate,” she said.

As the world anxiously awaits approval of effective coronavirus vaccines, IATA’s Director General and CEO Alexandre de Juniac described what lies ahead “Safely delivering COVID-19 vaccines will be the mission of the century for the global air cargo industry.”

Adam Shapiro is co-anchor of Yahoo Finance Live 3pm to 5pm.

By: Adam Shapiro

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The Positive Impacts of a COVID-19 Vaccine Will Arrive Before The Vaccine

Economic and financial impact during the Covid-19 health crisis deepens. Businesswoman with protective face mask checking financial trading data on smartphone by the stock exchange market display screen board in downtown financial district showing stock market crash sell-off in red colour.

Spending paused because of uncertainty now has some answers.

On Monday, Pfizer (PFE) and its German partner BioNTech shook markets with the most positive news yet on a potential vaccine for COVID-19.Before the market open, the companies announced their mRNA-based COVID vaccine candidate has indicated an efficacy ratio north of 90%.

Pfizer CEO Dr. Albert Bourla said of the results, “Today is a great day for science and humanity.” Dr. Anthony Fauci called the results “extraordinary.”Following this news, markets soared with the Dow (^DJI) and S&P (^GSPC) hitting intraday record highs before fading a bit into the close. The Dow’s close at 29,157 was still the index’s highest close since February 20.

And some of the biggest pandemic trends were reversed sharply as investors placed big bets on this news serving as a key step in the economy’s return to something like normal.Big “stay at home” winners like Zoom (ZM), Peloton (PTON), and Netflix (NFLX) were under pressure.

Airlines rallied, with shares of United (UAL), Delta (DAL), and American (AAL) all rising more than 15%.These lists go on — office space REITs were big winners, eCommerce plays like PayPal (PYPL) and Shopify (SHOP) sold off, gym operators rallied, banks jumped, credit card issuers were higher, and so on.

But the market’s reaction holds a key lesson for investors who might’ve been surprised to see such an enthusiastic reaction to this news. Especially considering the relative optimism the scientific community has had around vaccine development for some time.

And the lesson is that even a tentative roadmap for a vaccine allows businesses and consumers to plan in a way that has been nearly impossible for the past eight months.

“With the vaccine news today, households and firms are going to plan ahead, for example by booking travel, vacation, and capex,” said Torsten Sløk, chief economist at Apollo Global Management.

“The implication is that we will immediately begin to see the positive effects on employment, GDP, and earnings, even before the vaccine is available to the public.”

In other words, Pfizer’s vaccine or any others that follow need not be distributed to the population before starting to directly aiding the economic recovery. Sløk also notes that sectors of the economy that include close proximity to others account for about 22% of total employment.

And as we saw in the October jobs report published Friday, the number of workers out of a job in the leisure and hospitality and business and professional services sectors totaled 4.5 million, accounting for the vast majority of those who still remain unemployed. As of October, the number of workers unemployed remained 5.3 million higher than in February.

With these sectors able to see some light at the end of the COVID tunnel, the prospects for bringing workers back in the medium-term grow better.

And while no one sees Pfizer’s announcement on Monday as the end of the pandemic, an ability to reasonably contemplate the other side of this crisis is a welcome change for the businesses that had so far been left behind during the surprisingly durable economic recovery.

By Myles Udland, reporter and anchor for Yahoo Finance Live. Follow him at @MylesUdland

What to watch today

Economy

  • 6:00 a.m. ET: NFIB Small Business Optimism, October (104.1 expected, 104.0 in September)
  • 10:00 a.m. ET: JOLTS Job Openings, September (6.5 million expected, 6.493 million in August)

Earnings

Pre-market

  • 6:30 a.m. ET: Advance Auto Parts (AAP) is expected to report adjusted earnings of $2.65 per share on revenue of $2.48 billion
  • 7:00 a.m. ET: DR Horton (DHI) is expected to report adjusted earnings of 73 cents per share on revenue of $1.71 billion

Post-market

  • 4:05 p.m. ET: Lyft (LYFT) is expected to report an adjusted loss of 90 cents per share on revenue of $495.78 million
  • 4:10 p.m. ET: DataDog (DDOG) is expected to report adjusted earnings of 1 cent per share on revenue of $144.33 million
  • 6:20 p.m. ET: Rocket Companies (RKT) is expected to report adjusted earnings of $1.09 per share on revenue of $4.57 billion

Top News

European markets find calm after frantic rally on COVID-19 vaccine news [Yahoo Finance UK]

FDA approves Eli Lilly’s COVID-19 treatment for emergency use [Yahoo Finance UK]

Beyond Meat falls short in 3Q as restaurants struggle [AP]

Apple ‘One More Thing’ Mac event: What to expect [Yahoo Finance]

YAHOO FINANCE HIGHLIGHTS

There’s a new barrier to a fourth stimulus bill

Powell’s odds of Fed chair renomination brighten with President-elect Biden, GOP Senate

McDonald’s unveils its own meatless burger McPlant, a year after Beyond Meat test

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Airline Stocks AAL and UAL See Double-Digit Drops After Buffett Drops Them

Major U.S. airline stocks have dropped in pre-market trading after billionaire investor Warren Buffet revealed his firm Berkshire Hathaway dumped all of its holdings in the sector. American Airlines (NASDAQ: AAL) and United Airlines (NASDAQ: UAL) registered double-digit drops.

In Berkshire Hathaway’s (NYSE: BRK.A) annual meeting, which was conducted virtually for the first time ever, the billionaire investor noted the nearly $8 billion the firm invested in the country’s four biggest airlines was a “mistake,” and as such Berkshire dumped all of its holdings on the market.

Per Buffett, the airline business has “changed in a very major way” that will see the companies it had a stake in getting more indebted and with fewer commercial passengers, while having “too many planes.” Berkshire felt its share of the underlying warning “was a billion dollars” and felt the number “was more likely to go up than down over a period of time.” He added he was “wrong.”

We made that decision (to exit) in terms of the airline business. We took money out of the business basically even at a substantial loss, and we will not fund a company that where we think that it’s going to chew up money in the future

Buffett made it clear the firms’ CEOs weren’t to blame, but airline shareholders soon started dumping what they had as well. In pre-market trading Delta Air Lines (NYSE: DAL) has dropped 9.8%, while Southwest Airlines (NYSE: LUV) dropped 9.34%

American Airlines was seemingly the second-most affected, dropping 10.2% in pre-market trading.United Airlines suffered even more, losing 11% of its value before the opening bell.

The International Air Transport Association (IATA) lobby group has said global airline passenger volumes in March dropped to their lowest levels since 2006, while revenues dropped nearly 53% from the same period last year.

Cargo traffic, the IATA added, was down 15% from the prior year and is likely to keep on falling in 2020. Per the organization even as countries lift travel restrictions and coronavirus cases drop, demand isn’t likely going to recover as fast as expected. U.S. airlines, it’s worth noting, received $25 billion in aid from the CARS Act last month, and are forbidden from cutting staff until October 1.

Featured image by Ashim D’Silva on Unsplash.

Source: Airline Stocks AAL and UAL See Double-Digit Drops After Buffett Drops Them

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Airlines could be in major trouble and their stocks have certainly taken a hit because of this. Does this represent a time to buy or will they go bankrupt? Out of Delta airlines (DAL) United airlines (UAL) American Airlines (AAL) Southwest airlines (LUV) is there one worth buying and how do they rank when compared with each other?
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