What Do the Markets Need to Hang Their Hats On? Conviction?

Tuesday’s morning market activity appears to show some signs of strength with most arrows pointing upward, but there’s little conviction given the pullback from solid gains earlier. Could this be a repeat of yesterday’s middling performance?

The markets languished in a state of ho-hum Monday with the three major benchmarks ending flat as a flitter. The S&P 500 (SPX) and the Nasdaq (COMP) managed to sneak into positive territory, thanks to a mini rally in healthcare stocks, but just barely while the Dow Jones Industrials (DJIA) slithered lower.

At the close, the SPX edged up 0.1% to 2,058 while the COMP did by 0.3% to 4,750. DJIA erased 0.2% to 17,706 with Caterpillar, Inc. CAT leading the pack. Many analysts blamed the lackluster trading on another drop in the price of crude, fueled by a change in leadership of Saudi Arabia’s powerful energy minister over the weekend that fired up uncertainty about the country’s oil policy. Crude fell before $44 a barrel again, landing at $43.42, down 2.7%. In early action, crude was struggling to find that $44 level again, at $43.63.

Some analysts also say the markets appear to be in a wait-and-see mode about retail sales, which the government releases on Friday. Until then, we’ll get a smattering of earnings results from some major retailers like Macy’s Inc M, Nordstrom, Inc. JWN and Kohl’s Corporation KSS. Overall, many analysts say the results aren’t expected to be anything to cheer about considering how tough it has been for many retailers amid choppy consumer sentiment and spending. What’s more, Wall Street has been debating the future of shopping centers and malls for a few weeks now. Does America really need all these bricks-and-mortar stores? How long will it take until the top-line revenues at most major retailers is a 50%-50% bricks-and-mortar sales to online sales quotient? And what will happen to all those huge blocks of real estate that were once major department and discount stores?

The Gap, Inc. GPS has warned that its sales plunged and it will fall well short of Wall Street’s earnings expectations. Yesterday, the parent of Gap, Banana Republic and Old Navy stores turned in monthly sales results at stores open longer than a year, a key industry metric, that nosedived 7% compared with many analysts’ expectations of a 1.1% gain on easy year-over-year comparisons. That led to earnings guidance that is significantly below projections: GPS says its profit will fall to either $0.31 or $0.32 a share, compared with the $0.44 per share analysts at Thomson Reuters were forecasting. GPS also noted that it is taking steps to “better position (itself) for improved business performance.” Could that mean store closings?

On tap today is the Bureau of Labor Statistics monthly Job Openings and Labor Turnover, or JOLTs report, on the state of hiring. Will that move the markets? The Walt Disney Company DIS also will report earnings after the bell, and investors will be able to get a peek at how the strength of blockbuster movies weighs against the flagging circumstances of the networks, most notably ESPN.

Speaking of Data… Elsewhere in Fed Reserveland, New York Fed Chief William Dudley chatted with the New York Times about his views about the data-dependent path to policy. In short, he noted that the economy is not standing still. “People should understand that as economic circumstances change our expectations about what we’re going to do are going to change,” he said. “It’s just what we think we’re most likely to do...based upon the information we have in hand at that moment in time. But if the information changes, and that affects the economic outlook, then our view of how much monetary policy accommodation is appropriate will change.”

Another Shamed CEO. Scandal at the top appears to have again rocked a once well-regarded corporate head. This time, it’s Renaud Laplanche, the founder of online financier LendingClub (LC). The board ousted him after it said an internal review found a violation of the company’s policy regarding $22 million in near-prime loans to a single investor, LC said. "A key principle of the company is maintaining the highest levels of trust with borrowers, investors, regulators, stockholders and employees,” Hans Morris, a board director who was named executive chairman, told analysts. “While the financial impact of this $22 million in loan sales was minor, a violation of the company's business practices along with a lack of full disclosure during the review was unacceptable to the board.” Two other executives are also gone, though the company did not name them. LC stock, already down some 54% on a year-over-year basis, lost another 34% yesterday.