Market Perspective for May 10, 2016

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.

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