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Click Here to access today’s Global Momentum Guide WEEKLY SECTOR PERSPECTIVE Several data points for April will be released this week as earnings season winds down, including the consumer […]
The overall retail sector demonstrated solid growth as retail sales surged in April, despite brick-and-mortar misses. Sales rose 1.3 percent, comfortably ahead of economists’ 0.8 percent projections. The Atlanta Federal Reserve GDP Now model raised its second quarter GDP growth forecast to 2.2 percent on rising consumer data, and another upward revision could follow next week once this sales report is factored in. Online firms continue to dominate the retail sector, with Amazon (AMZN) hitting a new all-time high.
The Job Opening and Labor Turnover Survey (JOLTS) reported an all-time high job openings number. On Wednesday, the mortgage purchase applications index rose slightly as interest rates hovered near three-year lows. The weekly initial unemployment claims data Thursday showed an unexpected increase to 294,000, which is a 14-month high and above expectations of 270,000.
Commodities were down on the week after Chinese trade data confirmed continued slowing in the country’s economy. Oil prices headed higher though, United States inventory and production fell. Energy stocks also advanced on the week, as did the materials sector despite lower commodity prices. Copper, coal and steel stocks were down on the week.
SPDR Retail (XRT) fell more than 2 percent as brick-and-mortar retailers lagged. iShares Nasdaq Biotechnology (IBB) was a bit more volatile, rising and falling by more than 3 percent, only to close flat on the week. Dividend funds and corporate bonds remained stable, while the 10-year Treasury yield edged slightly lower to 1.74 percent. Utilities were the best performing S&P 500 sector, rising more than 1 percent with those lower interest rates.
Bank of Japan (BOJ) Governor Haruhiko Kuroda encouraged optimism with statements indicating the central bank could still substantially ease monetary policy. The Japanese yen weakened as a result, and global equities moved higher. Major sectors were generally higher on the week, but headline declines at Apple, Disney and some brick-and-mortar retailers overshadowed an otherwise bullish week for equities.
Despite blockbuster sales from its movie divisions and improvement at the company’s ESPN sports and entertainment operation, Disney (DIS) shares dropped approximately 6 percent as earnings per share and revenue came in below expectations. On Wednesday, Macy’s (M) missed analysts’ lowered expectations by a wide margin, and the company slashed its forward guidance. The stock price dropped 15 percent to new multiyear lows.
Shares of Kohl’s (KSS) were off 10 percent as the company missed consensus estimates for sales, earnings and revenues. Retail pain continued after-hours Thursday when high-end retailer Nordstrom’s (JWN) also missed expectations and guided lower for the rest of the year. The stock was off 17 percent. Dillard’s (DDS) also missed expectations and its shares dropped 6.5 percent after hours. Changing consumer preferences, online competition and discounts designed to move excess inventory are all factors that could be to blame for the declines.
In fast food, Wendy’s (WEN) was slightly lower on earnings, while Shake Shack (SHAK) surged almost 10 percent.
A negative report about Apple (AAPL) weighed on the Nasdaq. The Nikkei Asian Review reported Taiwanese chip manufacturers anticipate fewer orders from Apple due to slow sales of the iPhone 7, with Taiwan Semiconductor (TSM) expecting shipments to fall between 70 percent and 80 percent. Apple shares didn’t fall much on the news and shares are down less than 2 percent for the week, but it garnered attention when the slide sent shares to a new 52-week low. Some analysts said the drop was unwarranted, arguing the slowdown was expected and already priced into shares. Apple shares closed out the week with a rally on Friday. The stock accounts for 8 percent of the Nasdaq Composite, the largest holding in the index. In the past month, the Nasdaq trailed the S&P 500 Index by 3 percentage points, and half of that gap was caused by Apple.
SPDR Energy (XLE) FirstTrust ISE Revere Natural Gas (FCG) Global X Copper Miners (COPX) Market Vectors Coal (KOL) Market Vectors Steel (SLX)
Industrial commodities are in a corrective phase. Prices for China’s iron ore, steel and coal are tumbling following speculation crackdowns. China’s production has also increased over the past few months in response to rising prices, yet demand has not increased. SLX’s run appears to be over and a pullback to $24 seems likely.
iShares US Medical Devices (IHI) iShares US Health Providers (IHF) iShares Nasdaq Biotechnology (IBB) SPDR Pharmaceuticals (XPH)
Medical devices continue to lead the healthcare sector, while pharma lagged over the past week. Strong earnings and takeovers have fueled the latest bout of outperformance. Biotechnology recovered from some earnings misses and bounced higher.
Technology had pulled the Nasdaq lower in recent weeks, but the rally has moved the Nasdaq ahead of the other major indexes. Microsoft (MSFT) rallied during the week, but the more important moves were in Facebook (FB) and Amazon (AMZN), which both set new highs.
WisdomTree Bloomberg USD Bullish (USDU) CurrencyShares Euro Trust (FXE) CurrencyShares British Pound (FXB) CurrencyShares Canadian Dollar (FXC) CurrencyShares Japanese Yen (FXY) WisdomTree Emerging Market Currency (CEW)
The Bank of Japan signaled it may take actions to devalue the yen, halting the U.S. dollar’s bearish trend. The Chinese yuan then devalued versus the dollar. The euro is bumping up against resistance at $1.14, or $112 for FXE. The euro is the largest component of the U.S. Dollar Index at 57.6 percent of assets, and 32 percent of USDU.
Technology has been the leading sector over the past week. Dividend paying consumer staples have also outperformed, while utilities saw losses.
Consumer discretionary shares were down on Wednesday following an earnings miss at Disney (DIS). Theme park attendance and newly released movies have exceeded expectations, but cable television divisions, including ESPN, continue to struggle under increasing pressure from streaming competitors.
Macy’s (M) beat estimates by more than 10 percent, but weak guidance disappointed shareholders. JCPenney (JCP), Kohl’s (KSS) and Nordstrom’s (JWN) will report later this week. KSS and M are at 52-week lows and JWN could soon follow. Consumers are spending at a healthy pace; brick-and-mortar retail slumps simply reflect changing shopping patterns. Online retailers such as Amazon, are setting new 52-week highs as they capture more consumer activity.
iShares iBoxx High Yield Corporate Bond (HYG) iShares iBoxx Investment Grade Corporate Bond (LQD)
HYG traded sideways with oil prices over the past week. LQD found a new 52-week high, powered by falling interest rates.
The Internet sector continues to rally and a 2 percent gain will lift FDN to a new 2016 high. Amazon and Facebook are pulling FDN higher. Improved performance from Alphabet (GOOG), Salesforce.com (CRM) and Paypal (PYPL) will be needed to challenge the 52-week high set last year.
Guggenheim Solar (TAN) First Trust Global Wind (FAN)
Alternative energy fund performance has diverged this year. Wind power has followed coal and oil higher, but solar has moved sideways, hurt by overcapacity and bankruptcies. To be truly competitive, solar needs oil to rise above $80 per barrel.
The market opened to the upside this week following almost three weeks of consolidation. The Dow Jones Industrial Average and Standard & Poor’s 500 indices are both within 4 percent of their all-time highs. April’s second quarter numbers will figure prominently in this week’s data. Chinese economic data will also impact commodities. A two-week wave of consumer and retail sector earnings will kick off the U.S. earnings season today.
Consumer companies and several major retailers will be reporting this week. Disney (DIS) is expected to beat quarterly earnings after the closing bell this afternoon. Analysts will evaluate Disney’s blockbuster movie revenues and the current state of the company’s ESPN sports division, which has been losing subscribers. A big opening weekend for its latest superhero blockbuster will give DIS some positive forward guidance and Zootopia was a hit for this reporting quarter, but investors will likely overweight the troubles at ESPN if they see any deterioration from the trend. Fast food companies Shake Shack (SHAK) and Wendy’s (WEN) will also report.
On Wednesday, Macy’s (M) is expected to miss analysts’ expectations and the company recently cut its yearly sales forecast. Kohl’s (KSS) is scheduled to report on Wednesday, with analysts estimating earnings per share of $0.39 and revenues of $4.14 billion, which would be the lowest in two years. Analysts also expecting high-end retailer Nordstrom’s (JWN) to report a shrinking bottom line. On Friday, JC Penny (JCP) is expected to report a quarterly loss. The brick-and-mortar retail sector faces low expectations, but JCP has the lowest of this bunch. Last week, the New York Post reported the firm was taking “emergency measures” due to slower than expected April sales and bankruptcy rumors have swirled around the firm for months.
On Sunday, China’s April trade data reflected slower than expected imports and exports. Chinese copper and iron ore prices were down on Monday, continuing a slide that started last week when Chinese officials clamped down on commodities futures trading. China’s inflation data will be available late Monday. On Thursday, the Bank of England is expected to keep interest rates unchanged ahead of the upcoming vote on Britain’s EU membership. On Friday, economists forecast the European Union will report first quarter GDP growth of 1.6 percent year on year.
Key U.S. economic reports include today’s Job Opening and Labor Turnover Survey (JOLTS), Wednesday’s mortgage purchase applications index and the weekly initial unemployment claims data Thursday. All three reports are expected to show improvement over previous releases. March wholesale inventories will be released today. A deviation from expectations could impact the first quarter GDP revision. April retail sales figures, the University of Michigan Consumer Confidence Survey and the Producer Price Index (PPI) for April will be released on Friday. April retail sales are expected to rise 1.0 percent, with sales ex-autos forecast to rise 0.6 percent.
The overall retail sector is doing well, with firms such as Amazon (AMZN) showing excellent growth rates. Last quarter’s slower than expected GDP growth was partially attributed to slow consumer spending. Economists forecast faster growth in this quarter and April’s retail number could go a long way to shoring up confidence in the 2.4 percent growth estimate.
