Market Perspective for May 14, 2016

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.

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