The futures markets started mixed last night following a choppy trading session yesterday, but fell overnight as a few retail earnings reports underwhelmed Wall Street. Retail sales in July were unchanged from the June figures, but were up 0.4% excluding automobile sales. This shows that the consumer is still willing to spend. The report did not have much of an impact on the futures and we are still looking at a weak start to the trading day.
Traders are also awaiting the Fed Open Market Committee meeting minutes, which will be released at 2:00 P.M. (EDT). This will give some insight into the Fed’s decision-making process and may provide some clues as to which way the central bank may be leaning ahead of its next monetary policy decision in late September.
As noted above, trading was mixed yesterday, as economic data showed that the housing market is declining. Specifically, housing starts fell 9.6% in July, to 1.44 million annualized units. Still, earnings results and outlooks from a few retail names were positive. Overall, the markets trended sideways through the day, and the S&P 500 and NASDAQ ended not too far from their starting levels. On the other hand, the Dow Jones Industrial Average was buoyed by an outperformance from a few key names, including mass merchandiser Walmart (WMT). All told, the S&P 500 finished up eight points; the NASDAQ was down 26 points; and the Dow Jones Industrial Average rose 240 points. Overall, market breadth was narrow, as advancers only outpaced decliners by just a 1.2-to-1.0 ratio. Consumer staples stocks were among the best performers, helped by the aforementioned strong performance of Walmart. On the other hand, REITs were among the worst performers.
In commodity news, oil prices slid yesterday, to six-month low, as traders sold ahead of potential new supply coming on line from Iran. This was prompted by reports that a new nuclear deal with Iran has progressed. Elsewhere, U.S. Treasury bond yields were mixed, as short-term interest rates rose, but long-term rates fell. This morning yields are rising on higher-than-expected inflation data from Europe. Still, the yield curve remains inverted with several short-term interest rates higher than long-term ones, which usually indicates a coming recession. The CBOE Volatility Index (or VIX) declined yesterday as traders demanded less options protection.
Several economic reports will be released in the days ahead. These include the Philadelphia Fed manufacturing index, existing home sales for July, and initial jobless claims on Thursday. Additionally, several regional Federal Reserve Governors will give remarks on Thursday and Friday. Elsewhere, the earnings season is reaching its trough, with few reports expected over the coming days. That said, Dow-component Cisco Systems (CSCO) is slated to report after the close of trading today. Overall, we think trading will focus on any sentiment changes caused by the Fed minutes' release.
− John E Seibert III
At the time of this article’s writing, the author owned positions in one or more of the companies mentioned.
