Weekend Ready. Stocks appeared on track early Friday to end the week with gains, thanks to ongoing optimism that the U.S. and China will lower the temperature of the trade war. Meanwhile, retail sales edged up slightly last month. In Friday’s Morning Movers we…
- Talk about tariffs, once more;
- Examine shoppers’ appetites;
- Look at Sears’ Holdings (SHLD) post-earnings pop.
Hope Is a Thing With Feathers
Stocks were rising before the opening bell Friday, thanks again to trade hopes.
Dow Jones Industrial Average futures and S&P 500 futures were up 0.1% in pre-market, and Nasdaq Composite futures were 0.2% higher.
Once again trade is in the spotlight, as investors hope that a fresh round of talks between the U.S. and China later this month will help ease tensions and prevent another round of tariffs. Asian stocks, which have been hit much harder than domestic markets, also rose.
While U.S. stocks have held up far better than international ones throughout months of tariff escalation, a resolution would still be very welcome. Yes, the S&P 500 has gained almost 10% through the end of August, but with a good deal market choppiness, which is attributable to worries about a potential trade war, writes BNP Paribas Asset Management’s Eric McLaughlin: “Clearly, a significant escalation could quickly undermine currently positive investor and business sentiment.”
He is among the majority who think we’ll find a more amicable resolution before it comes to that, but it’s not surprising that investors are wary of the protracted nature of the rancor. Still, U.S. stocks have chugged through the volatility given strong fundamentals, and for now appear able to continue doing so. “While a recession would likely end the bull run, we see little evidence of a deteriorating environment. To the contrary, economic growth is accelerating.”
It’s a welcome respite from pressure on tech earlier this month and comes ahead of the upcoming Global Industry Classification Standard (GICS) shakeup, which will see Facebookand Google parent Alphabet move into the newly created communications services sector. CFRA’s Lindsey Bell writes that she’s still bullish on tech ahead of what is a seasonally strong period of the year for cyclical sectors. She’s also encouraged by stocks that will remain in tech after the switch, like Apple and Microsoft,seeing their “strong cash flow and potential for upside to consensus estimates as a positive for the group. Increased momentum from stocks that had lagged earlier in the year should also prove to be a tailwind for the sector into the end of the year.”
Another group that traditionally does well at the end of the year is retail, but the sector has been going strong all year long. Retail sales for August were out Friday morning, and the data showed that they continued to grow, albeit at just 0.1%, the smallest increase for the reading in six months. That was below economists’ expectations for a 0.3% rise, and largely due to gas prices. Still, despite last month’s lackluster showing, retail sales are still up 6.6% in the past 12 months, and July’s figure was revised upward to 0.7% from 0.5%.
The figure comes after Thursday’s Consumer Price Index showed that Americans were paying slightly more for goods, but that inflation was largely in check. Consumer confidence, which has been hovering near multi-year highs for some time, has been one of the major drivers of U.S. market resilience. After being left for dead for much of 2017, retail has scaled to new highs, and consumer spending in general has helped buoy investor optimism about the U.S. economy.
Still, all good things must come to an end, or at least take a pause, like shoppers appear to have done in August. “Consumers are spending more, but there are limits to their ability to keep emptying out there wallets,” Naroff Economic Advisors’ Joel Naroff writes. “We are likely to see a slow but fairly steady moderation in demand for the rest of this year despite the impacts of the tax cuts,” he predicts.
That’s not so bad: We’ve known for some time that consumers and corporate profits aren’t inexhaustible, so while recent highs have been great, a small drop off isn’t much to be worried about. Morgan Stanley’sEllen Zentner has much the same view, writing that “though consumer fundamentals remain strong, we see consumption moderating somewhat in the back half of the year, bring fourth-quarter over fourth-square growth for 2018 as a whole to 2.3%, following 2.7% growth quarter over quarter in 2017.”
Let us down gently, please.
Constellation Brands(STZ) was down 1.2% to $212.30 after Guggenheim initiated coverage with a Sell rating.
Corning (GLW) was up 1.3% to $35.52 after Citigroupupgraded it to Buy.
Sears Holdings(SHLD) was up 13.2% to $1.37 despite reporting rough second-quarter earnings. The department store lost $4.68 a share, up from $2.33 a share last year. There is no longer any analyst coverage or estimates for the stock.
Parker Hannifan (PH) was up 1% to $186.50 after Buckingham Research upgraded it to Buy.