Stocks once again made a run for new highs, only to find resistance at the 3125 level, a level I had identified weeks ago. (It was actually 3127, but really do 2 points really matter at this stage in the game?) As the day wore on the Dow and S&P struggled while the Nasdaq and the Russell gained. By the end of the day the Dow lose 102 points, the S&P gave up 2 points, the Nasdaq +20 and the Russell added 5 points.
Retailers in focus: Home Depot (HD) fell $12 or 5.3% on disappointing same story sales while Kohl’s (KSS) fell $11 or 19% also on weak same store sales. Now let’s put this in perspective, HD was up 40% year-to-date, so a 5% pullback is no reason to panic at all, unless you think that this weakness in same store sales is suggesting something else is going on. I do not. I was in HD over the weekend, they are fine. People everywhere, buying Christmas trees, decorations, home improvement stuff, new appliances, windows, doors, and cabinetry, etc. Me? I went in for a new shower head.
Now KSS, which has been an underperformer all year (-9%, got slammed once again with the latest report). This speaks directly to the retail environment. TJX (TJMaxx) rose 1.8% after they reported better numbers and stronger sales. So the whole weak consumer argument goes out the window. Online retail is doing fine, bricks and mortar retail, “not so much” unless you can offer a “good customer experience.” For the most part, KSS doesn’t give you that “experience.” So this negative tone infected a lot of the retail sector, M, JWS, GPS, etc. The XRT (retail ETF) fell 1.9% on the day.
After the bell we heard from Urban Outfitters (URBN) which already had gotten beaten up during the day, falling 4.5% ahead of their earnings announcement. And guess what? They missed on both revenues and earnings. Expectations were for 57 cents/share on $1 billion of revenue. They reported 56 cents/share on $987 million, and they crushed it even more in the after-hours session, sending it down $4 more or another 16%. This leaves me to ask: Is this just a bit overdone? Like KSS, URBN has been an underperformer all year. As of last night it is down 12% year-to-date and suddenly all the talk is of a weak consumer??? Really, consumer spending is strong! The latest macro data, Retail Sales, was +0.3% better than the expected 0.2%. How about maybe, consumer tastes are changing. What was once in demand is no longer. Recall the move from Abercrombie or even Benetton? And for us boomers, do you remember LaCoste? How popular was that little alligator brand at one point in our lives and then boom, it’s gone… Change in preferences, period. Do not make it more than it is.
TJX (TJMaxx) rose 1.8% after they reported better numbers and stronger sales. This morning Lowe’s reported and they beat the number, and announced better forward guidance and the stock is trading UP $1.50 or 1.3% in the pre-mkt session. TGT (Target) just reported and they BEAT expectations, stock trading up $9 or 8%. So, what was that about a weak consumer??? That argument goes out the window. I do not believe that the consumer is suddenly going “dark” on us. I think it is just a change in preference.
Now while the Dow lost 102 points yesterday, the bulk of that move came from three stocks: HD, BA, and CVX as they took 88, 16 and 14 points respectively out of the Dow. HD we know, BA because the FAA is not going to be driven to make a decision based on demand and in fact has asked for a re-design of the plane’s engines. CVX (Chevron) is about the ongoing oil story, increasing stockpiles of inventory, fading hopes for a trade deal, and increasing Russian output (or less of a chance that they CUT output). Either way, it is about MORE OIL. The XLE (Energy ETF) taking it on the chin, falling 1.5% as that story.
Next up, was the rumor all day that Trump was going to get even tougher on China, which led to some cautiousness. But, it did not cause any major negative moves in the broader market. That could all change this morning. Futures are in the RED! Surely that must be a mistake, no?
So the rumor of what he was thinking was confirmed and CNBC reports that “during a meeting with his cabinet on Tuesday, The President said that if China did not make a deal, he would ‘just raise tariffs even higher.’”
And this is causing a RISK OFF mentality this morning. But should a drop here be a surprise? I mean the sentiment has been a bit optimistic, wouldn’t you say? I mean all four indexes: The Dow, S&P, Nasdaq, and Russell are all up more than 9% in the fourth quarter alone (post the third rate cut and word that a deal was imminent). We know what they are up for the year! So with little to no prospect of a trade deal happening in the next month, would you expect the market to continue to trend higher or should it back off, digest, churn, digest, and then decide what’s next?
Stocks in Asia were weaker (think trade threats), period. China lashes out at us because we (as a country) are supporting human rights in Hong Kong and Xi Xi doesn’t want us interfering in “internal Chinese matters.” This could be that black swan event that causes stress for the markets.
Japan -0.62%, China – 0.99%, Hong Kong – 0.75%, and ASX -1.35%.
Same story in Europe: Markets there are weaker on trade threats and on the increasing tensions between “mommy and daddy,” Hong Kong and China.
FTSE -1.40%, CAC 40 -0.65%, DAX -0.95%, EUROSTOXX -0.75%, SPAIN – 0.79%, and ITALY -0.53%.
US futures are decidedly lower this morning as trade threats take center stage and the idea that a trade deal is off the table for now. Dow futures are -112 points, S&Ps are -11 points, the Nasdaq is -42 points and the Russell is -9 points. There is no real economic data today, other than the FOMC mins, which can’t contain anything that we don’t already know. If they do, and it looks like someone is playing “I’ve got a secret,” the markets will certainly react. (Not happening).
The S&P could easily come back to the 3070 level to find support. Quite honestly, you want to see that happen. In fact, I would like to see it come back to the 3025 level (which is my year target!). So yes, I’m talking my own book!!!
A breach here could see it test the October low of 97 before finding support.
Gold is trending higher today (as are treasuries) as the trade story is front and center. Any concerns over trade will force gold to move up, where it should find resistance at $1,495-ish. Like I said yesterday, “We need a crisis for Gold to pop.”
Have a great day.
Take good care.
Old Fashioned Honey Infused Corn Bread
Corn bread is one of those things that everyone remembers… I mean who doesn’t like corn bread? Hot out of the oven, schmear some butter and a cold glass of milk – reminds me of being a kid – no?
For this you need: 1 ¼ cups buttermilk (or whole milk), 1 stick of butter – melted, 1 ½ cups cornmeal – med grind is better – it will give you that hearty grainy taste – ½ cup flour, 1 ½ tspn baking powder, 1 tsp salt, 1 tbsp. sugar, or a bit more if you like it sweeter, 1 egg and some honey.
Preheat the oven to 375 degrees.
Melt the butter in the microwave.
Combine the dry ingredients in a bowl. Mix the egg into the buttermilk or milk. Mix well and then add to the dry ingredients. Add the butter. (If it seems too dry, add a bit more of the milk) Pour the batter into greased muffins tins or a greased baking pan. Tap on the counter to remove any air bubbles and now place in the oven.
Bake for about 30 minutes and then stick the knife in – if ready it will come out clean. If not – bake a bit longer. You want the top to be lightly browned while the sides have pulled away from the pan.
When you pull it out of the oven – use a fork and poke holes in it… all over – don’t destroy it, just poke holes. Now squeeze the honey out and spread it over the top of the hot cornbread – allowing the honey to absorb through the holes. Serve this on your Thanksgiving day table.