Stocks Headed Lower, Could Snap Win Streak as Retail Spending Gap Grows

Broad stock averages headed lower Friday and put a streak of weekly wins in jeopardy. Is the bad luck of Friday the 13th at work? Probably not. This lower run may surprise few on Wall Street considering continued energy weakness and worries that improving job conditions aren’t translating to robust consumer spending. Weak retail-sector earnings and government-issued retail sales figures issued Friday morning contributed to Wall Street’s cautious sentiment.

Comments from Federal Reserve officials this week signaling their interest in policy action sooner versus later have kept expectations for a December rate hike in play. It’s a mixed economic picture that has induced stock market indecision in recent sessions.

The Fed and Wall Street are mulling these latest stats: retail sales in October climbed just 0.1%, the Commerce Department said. Economists had expected a far-stronger reading of 0.3%. Excluding volatile items such as gas and autos, sales rose 0.3%. September sales were revised down to a flat reading from a previous reading of 0.1% growth. Another measure of U.S. consumer confidence will hit this morning: the University of Michigan’s consumer-sentiment index is slated for release at 10 a.m. Eastern.

Also reported, U.S. producer prices dropped 0.4% in October, likely a result of lower sales at retailers. Street economists had expected the measure to climb 0.2%. Excluding volatile items, core prices fell just 0.1%.

Against this backdrop, major stock benchmarks are on track for a weekly loss—their first after a string of six weekly gains. In fact, that streak had been the longest since late 2014. The Dow Jones Industrial Average ($DJI) and S&P 500 (SPX) (figure 1) face weekly losses of roughly 2.5%, while the NASDAQ Composite (COMP) is setting up for a potential 2.7% weekly decline.

Tech in Focus, Too. Cisco Systems CSCO fell late Thursday and early Friday after the networking-equipment maker projected revenue and profit in the current quarter below Street analyst estimates.

Oil, Oil Everywhere. International Energy Agency data revealed oil stockpiles grew to a record of almost 3 billion barrels because of strong production in OPEC and elsewhere. This "massive cushion has inflated" even as the saturated global oil market adjusts to roughly $50 a barrel oil, the agency said in its November report. Notably, the IEA predicts that supplies outside OPEC will decline next year by the most since 1992 as low prices reduce the motivation to produce in the U.S. shale industry. U.S.-traded crude futures early Friday are near $42 a barrel after dropping some 4% in Thursday’s session alone.

Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
The information 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. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2015 TD Ameritrade IP Company, Inc. All rights reserved. Used with permission.