Market Perspective for August 26, 2016

Markets have remained predictably quiet amid the late summer vacation season. Stocks traded lower following Fed officials’ statements at the Jackson Hole symposium, pulling the S&P 500 Index down on the week.

While the Fed failed to indicate an exact timetable for interest rate increases, officials cited a strengthening economy that increasingly supports a hike.  Voting member and Kansas City Fed president Esther George advocated for a hike in the near future, a sentiment echoed by Dallas Fed President Robert Kaplan. Fed Chair Yellen drew attention to favorable labor data and suggested the possibility of at least one additional increase in 2016, but stopped short of committing to a schedule.  Fed Vice Chair Fischer, however, indicated the possibility of a September hike. Stocks initially rallied and the U.S. dollar weakened following Yellen’s speech, only to reverse course in response to Fischer’s more assertive comments.

Healthcare dragged on the market this week following the widely-publicized Epipen price hike that quickly pressured the drug’s producer Mylan (MYL) to offer discounts and coupons to consumers of the life-saving allergy device. The sector rebounded on Friday, modulating the loss to about 1 percent for the SPDR Healthcare Select Sector ETF (XLV). was down about 1 percent on the week. SPDR Pharma (XPH) was harder hit, losing more than 3 percent on the week.

The latest manufacturing and services flash Purchasing Managers’ Indexes (PMI) for the U.S. and the Eurozone reflected stable private sector business activity. New home sales climbed to a nine-year high in July, while existing home sales fell more than expected. This lifted homebuilder stocks to their highest level in a month. Durable goods orders for July rose 4.4 percent, which was above expectations of 3.3 percent growth. The labor market remains strong, with the number of Americans filing for first-time unemployment benefits falling for a third consecutive week. Weekly oil inventory reported a build of 2.5 million barrels and merged with growing concerns regarding OPEC to send prices lower. The revised estimate of second quarter GDP growth ticked down 0.1 percentage point, to 1.1 percent.

The retail sector once again took center stage in the week’s earnings arena. Shares of Best Buy (BBY) jumped 16 percent to a 10-month high after sales and earnings handily beat analysts’ expectations. While revenues were comparable to year-ago numbers, the company’s profit rose 6 percent. Conversely, shares of Express, Inc. (EXPR) dropped 25 percent following disappointing sales and weak foot traffic similar to other brick-and-mortar fashion retailers. Poor forward guidance hurt Hewlett-Packard (HPQ), resulting in a modest decline in shares despite beating analysts’ earnings and revenue forecasts.

On Thursday, discount retailer Dollar General (DG) missed its top and bottom line revenue numbers as well as its earnings target. The company also reported poor same-store sales and announced weaker-than-expected forward guidance. Shares fell more than 18 percent. Shares of Dollar Tree (DLTR) similarly tumbled as earnings missed expectations and forward guidance disappointed investors. Both retailers discussed rising rents and the high cost of the Affordable Care Act as squeezing their low income customers. On the opposite end of the retail spectrum, shares of luxury vendor Tiffany (TIF) rose when the company reported better-than-expected profits for the second quarter.

    Your Cart
    Your cart is emptyReturn to Shop