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Upbeat Sentiment On Retail Wanes After Trump Comments On Trade

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Upbeat Sentiment On Retail Wanes After Trump Comments On Trade

The up and down of the market so far this week seems to have been a tale of two types of trade.

Excitement about a potentially bumper holiday shopping season goosingdomestic trade at retailers helped spark a rally yesterday. But the mood seems more somber this morning as tensions about trade between the United States and China have come back to the forefront.

President Trump told the Wall Street Journal in an interview that it was “highly unlikely” that he would grant a Chinese request to hold off on raising tariffs on $200 billion in Chinese goods to 25 percent from the current 10 percent. He also reiterated his threat to put duties on the rest of Chinese imports not currently subject to tariffs, the newspaper reported. 

If the U.S. goes ahead with the tariffs on additional goods, Trump said Apple Inc. (NASDAQ: AAPL) iPhones and laptops imported from China could be subject to duties, the newspaper reported. That news comes on the back of already existing concerns about iPhone sales. AAPL shares were down more than 1.8 percent in pre-market trading.

Trump’s comments are the latest salvo in a trade dispute between the world’s two largest economies that has dragged on for months and fueled worries about global economic growth. Those fears have helped put downward pressure on both the equities market and oil prices in recent days.

Oil is down again this morning, and with the substantial declines in prices recently, it might be worth watching to see if Federal Reserve Chairman Jerome Powell makes any mention of the fall in crude in a speech Wednesday or if central bankers mention falling prices in minutes scheduled for release the same day. It’s possible that Wall Street could interpret mention of falling oil prices as a dovish sign from the central bank.

Retail-Fueled Gains

On Monday, the shopping wasn’t confined to just online retailers. Bargain hunters seemed to be buying in the stock market too. Every S&P 500 (SPX) sector closed in the green yesterday, led by consumer discretionary stocks as investors appeared to be positive on the sector as post-Thanksgiving sales continued into Cyber Monday. 

According to a late-morning press release yesterday, Adobe Systems Incorporated (NASDAQ: ADBE) was projecting that spending on Cyber Monday would hit $7.9 billion by the end of the day to make it the biggest U.S. online shopping day in history. 

Despite steep online competition, brick-and-mortar isn’t dead. On Thanksgiving Day and Black Friday, shopper visits to traditional retail stores declined just 1 percent for the combined two-day period compared to last year. On Black Friday alone, there was a 1.7 percent drop in traffic versus 2017, according to ShopperTrak. “The fact that the combined shopper visits remained almost the same this year compared to the last three years proves that the notion of Black Friday not being popular anymore is a myth,” Brian Field, senior director of global retail consulting for ShopperTrak, said in a press release. “Based on the Black Friday traffic data, retailers are in for a successful holiday season.”

With retailers racking up sales online and in stores, it perhaps wasn’t surprising to see the consumer discretionary sector up nearly 2.6 percent, leading the other 10 S&P 500 sectors in percentage gains.

Tech, Oil Bounce Too

Information technology shares took the runner-up ribbon for gains Monday, helped by bounces in Facebook, Inc. (NASDAQ: FB), Amazon.com, Inc. (NASDAQ: AMZN), AAPL, and Alphabet Inc. (NASDAQ: GOOG) (NASDAQ: GOOGL).

Yesterday’s bounce in tech shares, and the wider U.S. market, after last week’s selling may also have to do with some bargain hunting as investors appear to be trying to get a feel for whether the overall downward bias in stocks may be coming to an end.  

Stocks weren’t the only asset to bounce on Monday. Oil prices also rose. The bounce may have been helped by bargain hunting and by a seemingly more favorable attitude toward assets perceived to be riskier. U.S. government bond yields rose as investors apparently exited Treasuries as the perceived need for more defensive assets waned. Wall Street’s fear barometer, the CBOE Volatility Index (VIX), dropped.

But uncertainty doesn’t seem to have fully left the market, as the VIX remains elevated. It’s been bouncing around the 20 mark of late, which is higher than what we’ve seen for much of this year but is in the ballpark of historical norms. Although it fell yesterday, with tensions about trade heading into the G20 meeting, it might not be surprising to see it inch back up.

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Figure 1: Nearing a Bottom? There has been plenty of selling in the stock market in recent weeks, as shown by this chart of the S&P 500. CFRA, an investment research firm, thinks the selling may be nearing a conclusion (see below.) Data Source: S&P Dow Jones Indices. Chart source: The thinkorswim® platform from TD AmeritradeFor illustrative purposes only. Past performance does not guarantee future results. 

Selling Seen Near Conclusion

The current stock market selloff may be nearing a conclusion, investment research firm CFRA said in a note on Monday. Based on the average next-12-months price-to-earnings ratio for the five most recent market declines in excess of 5 percent, the S&P 500 would need to fall just 1.4 percent more from last week’s close to bottom around 2596. But if the market needs to fall to the average P/E ratio from the last 10 market declines before bottoming, the index would have to fall to 2321. “The magnitude of the ultimate decline will largely reflect the consensus conclusion surrounding the ongoing trade dispute, which represents the keystone in this arch of agita,” the firm said. “At CFRA, we don’t see a recession on the horizon and think there is a very good chance that this selloff is near its conclusion.”

Second Q3 GDP Estimate

Tomorrow, the government takes its second swing at gross domestic product numbers, with its second estimate of Q3 GDP. The figures are expected to show robust annualized growth of 3.6 percent, according to a Briefing.com consensus. That would be slightly ahead of the 3.5 percent recorded in the first estimate, so it probably wouldn’t be enough to sway the Fed’s thinking on the pace of economic growth and the potential need to rein it in with more hawkish policy. But it may be worth watching for whether the number comes in ahead of expectations or if the prior reading is revised substantially higher. If either of those two scenarios occurs, it could weigh on stocks as investors might worry that the Fed might act more aggressively to keep the economy from overheating.  

Bright Spot for Housing

If you were like many on Wednesday and focused on heading out for the Thanksgiving holiday, you could be forgiven if you missed some news from the housing market. There’s been a drum beat of less-than-stellar housing news in recent days, so Wednesday’s better-than-expected existing home sales data for October may have come as a welcome surprise. Sales rose month-over-month to a seasonally adjusted annual rate of 5.22 million, beating the Breifing.com consensus expectation of 5.2 million. But the housing market isn’t out of the woods, as “even with the October increase, the level of sales remains at levels from late 2016 as higher mortgage rates and a limited supply of lower-priced homes weigh,” Briefing.com said. 

Information from TDA is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade.

Posted-In: TD AmeritradeNews Retail Sales Econ #s Federal Reserve Markets

 

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