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

Stocks Mixed As Vaccine Euphoria Abates Tech Selling Continues

Stocks were mixed Tuesday as investors reined in an initial wave of optimism over a promising vaccine candidate. Tech shares remained under pressure, and the Nasdaq dipped further after Monday’s losses.

[Click here to read what’s moving markets heading into Wednesday, Nov. 11]

News that a Pfizer (PFE) and BioNTech’s (BNTX) vaccine candidate was more than 90% effective in preventing COVID-19 in patients in its clinical trial helped fuel a market rally earlier on Monday. During the regular session, the S&P 500 and Dow rocketed to intraday records, with the latter index adding as many as 1,610 points, or 5.7% at session highs. However, both indices pared some gains into market close.

“I think the big surprise here was the efficacy. I think you had polled investors before this, the efficacy range would have been 50-75% as sort of a wide range,” Stuart Kaiser, UBS Head of Equity Derivatives Research, told Yahoo Finance on Monday. “And if this number is truly 90% or above, I think that is what the market is responding so positively to.”

More positive news from companies working on COVID-19 vaccines and therapeutics came out during the overnight session. Eli Lilly (LLY) said its antibody therapy for treating mild to moderate COVID-19 in high-risk patients had received emergency use authorization from the U.S. Food and Drug Administration. Shares of the drug-maker rose more than 3% in early trading.

Shares of cruise lines, airlines and lodging companies – which each stand to benefit from the increase in consumer confidence that an effective vaccine might confer – gave back some gains after surging during the regular session.

Many of the tech stocks that had led the market higher earlier this year did not participate in Monday’s rally, however, and continued to sell off Tuesday morning. Investors unloaded positions in software names that had climbed throughout much of 2020, as traders treated them as safer bets while the pandemic threatened to keep people mostly at home. Other safe haven assets, including gold, silver and U.S. Treasuries, steadied Tuesday morning after tumbling during Monday’s session.

A successful vaccine has widely been viewed by investors, company executives and politicians as the key component of a broad-based economic reopening and sustained recovery. About 27 million workers, or around 22% of the U.S. workforce, are in occupations that require close physical proximity, Torsten Slok, chief economist for Apollo Global Management, pointed out in a note, with many of these workers having been put out of work by the fall-out from the pandemic and social distancing orders.

Still, widespread distribution of a vaccine – from either Pfizer or one of the other companies in late-stage trials including Johnson & Johnson (JNJ) and Moderna (MRNA) – is not likely to take place for months, even after approval is granted. Some analysts cautioned against extrapolating too far beyond Monday’s knee-jerk jump higher in markets as the race for a vaccine, and the ongoing uncertainty over whether Congress might deliver additional fiscal stimulus in the meantime, continue to play out.

“The vaccine news is really a 2021 story and we still have the worst to deal with COVID, as cases run at new highs. So the vaccine is not an immediate fix,” Carter Henderson, Fort Pitt Capital Portfolio Specialist, told Yahoo Finance on Monday. “That’s why we believe stimulus is still on the table. So if we get news about stimulus early in next year coupled with vaccine news, we think the market could have a true melt-up.”

4:03 p.m. ET: Stocks mixed as vaccine cheer abates and tech selloff continues. Dow adds 262 points, or 0.9% while Nasdaq drops 1.4%

Here were the main moves in markets as of 4:03 p.m. ET:

  • S&P 500 (^GSPC): -5.01 (-0.14%) to 3,545.49
  • Dow (^DJI): +262.23 (+0.90%) to 29,420.20
  • Nasdaq (^IXIC): -159.93 (-1.37%) to 11,553.86
  • Crude (CL=F): +$1.08 (+2.68%) to $41.37 a barrel
  • Gold (GC=F): +$18.30 (+0.99%) to $1,872.70 per ounce
  • 10-year Treasury (^TNX): +1.4 bps to yield 0.9720%

1:31 p.m. ET: JPMorgan sees S&P 500 hitting 4,000 ‘by early next year’ and to 4,500 by year-end 2021

In a new note, JPMorgan strategists said they see the S&P 500 rising to 4,000 by early 2021, aided by an improving economic backdrop as key risks from the coronavirus pandemic and uncertainty over the political landscape abate. Hitting 4,000 implies additional upside of nearly 13% from Monday’s closing levels.

“The equity market is facing one of the best backdrops for sustained gains in years. After a prolonged period of elevated risks (global trade war, COVID-19 pandemic, US election uncertainty, etc.), the outlook is significantly clearing up, especially with news of a highly effective COVID-19 vaccine,” they said. “We expected an imminent vaccine outcome and a rotation out of COVID-19 beneficiaries/momentum and into epicenter/value stocks.”

“We view a confirmed Biden victory with a likely legislative gridlock as a goldilocks outcome for equities, a ‘market nirvana’ scenario,” they added.

With this in mind, the strategists say they see the S&P 500 topping their previous price target of 3,600 before year-end and hitting 4,000 “by early next year, with a good potential for the market to move even higher (~4,500) by the end of next year.”

1:10 p.m. ET: Apple unveils new in-house M1 chip for Macs

Apple (AAPL) on Tuesday announced its own in-house silicon chip for its Mac computers, making good on its promise in June to unveil new Apple-made chip technology for the Mac by the end of the year.

Johny Srouji, Apple senior vice president of hardware technology, said the new chip designed specifically for the Mac will deliver a “giant leap in performance” relative to existing technology. The chip, called M1, will be produced using the 5-nanometer process and help improve performance and power efficiency for the Mac.

In developing its own chips, Apple will be transitioning away from Intel’s processors for the Mac, which it had used for the past 15 years. Apple executives said Tuesday that they will be developing a “family of chips” and will be transitioning the Mac to the new line over the coming years, with M1 comprising the first step in this process.

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Apple shares rose about 0.5% with the live-streamed event under way.

12:41 p.m. ET: Dow holds higher while tech selling leads S&P 500, Nasdaq lower

The three major indices remained mixed during Tuesday’s afternoon session, with declines across many of the heavily weighted tech stocks pulling both the S&P 500 and Nasdaq into the red.

The information technology, consumer discretionary and communication services sectors led the declines in the S&P 500, while consumer staples, industrials and energy stocks outperformed. The Dow rose more than 200 points, bucking the downward trend of the other two indices as shares of Walgreens Boots Alliance jumped 8.5%, and Boeing rose 6.8%.

10:02 a.m. ET: Job openings little changed in September from August, though government openings fall as Census worker demand drops: BLS

Job openings in the U.S. totaled 6.436 million as of the end of September, the Bureau of Labor Statistics reported on Tuesday. This was little changed from the 6.352 million reported at the end of August, and slightly below the 6.5 million openings for September that consensus economists had predicted, according to Bloomberg data.

The number of job openings decreased in the federal government by 20,000, and the number of hires fell by 256,000 primarily due to a drop in demand for temporary 2020 Census workers, the BLS added. Hires also fell in retail trade and educational services, while rising in accommodation and food services, wholesale trade, and transportation and warehousing industries.

9:32 a.m. ET: S&P 500, Nasdaq fall while Dow adds to Monday’s gains

Here were the main moves in markets, as of 9:32 a.m. ET:

  • S&P 500 (^GSPC): -4.67 points (-0.13%) to 3,545.83
  • Dow (^DJI): +151.57 points (+0.52%) to 29,309.54
  • Nasdaq (^IXIC): -63.90 points (-0.52%) to 11,654.1
  • Crude (CL=F): +$0.62 (+1.54%) to $40.91 a barrel
  • Gold (GC=F): +$24.20 (+1.31%) to $1,878.60 per ounce
  • 10-year Treasury (^TNX): +0.8 bps to yield 0.966%

7:24 a.m. ET: Stocks point to mixed open, Dow futures add 200+ points while tech shares slide

Here were the main moves in markets as of 7:24 a.m. ET:

  • S&P 500 futures (ES=F): 3,540.25, down 3.75 points or 0.11%
  • Dow futures (YM=F): 28,278.00, up 230 points or 0.79%
  • Nasdaq futures (NQ=F): 11,635.75, down 184.75 points or 1.56%
  • Crude (CL=F): +$0.25 (+0.62%) to $40.54 a barrel
  • Gold (GC=F): +$22.30 (+1.2%) to $1,876.70 per ounce
  • 10-year Treasury (^TNX): -2.1 bps to yield 0.937%

7:12 a.m. ET Tuesday: EU files antitrust complaint against Amazon, opens a second probe over the e-commerce platform

The European Union on Tuesday said it issued a statement of objections against Amazon over practices it has implemented while serving as both a marketplace platform and seller, which the EU said the company has used to make “strategic business decisions to the detriment of the other marketplace sellers.” Amazon shares fell 2% in early trading.

“The Commission’s preliminary view, outlined in its Statement of Objections, is that the use of non-public marketplace seller data allows Amazon to avoid the normal risks of retail competition and to leverage its dominance in the market for the provision of marketplace services in France and Germany – the biggest markets for Amazon in the EU,” the EU said in a statement. “If confirmed, this would infringe Article 102 of the Treaty on the Functioning of the European Union (TFEU) that prohibits the abuse of a dominant market position.”

The statement of objections does not mark the end or the outcome of an investigation or suggest any fines or changes to Amazon’s business model that the EU might eventually demand. It does, however, raise the specter of further action against the company.

The EU also announced it opened a second antitrust investigation over whether Amazon’s business practices “might artificially favor its own retail offers and offers of marketplace sellers that use Amazon’s logistics and delivery services (the so-called ‘fulfillment by Amazon or FBA sellers’).”

6:01 p.m. ET Monday: Stock futures open higher amid lingering vaccine optimism

Here were the main moves in markets, as of 6:01 p.m. ET Monday evening:

  • S&P 500 futures (ES=F): 3,556.00, up 12 points or 0.34%
  • Dow futures (YM=F): 28,153.00, up 105 points or 0.36%
  • Nasdaq futures (NQ=F): 11,882.25, up 61.75 points or 0.52%

By: Emily McCormick

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With volatility already falling in the aftermath of the U.S. election, Monday’s dramatic risk-on move saw the Cboe Volatility Index halt its decline. The VIX edged higher, bringing to an end a five-day streak of losses. Already buoyed by Joe Biden’s presidential victory, U.S. junk bond yields plunged to a record low on Monday. The average yield for the Bloomberg Barclays U.S. corporate high-yield index sank to 4.56%, dropping below the previous record of 4.83% set in June 2014.

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