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Afternoon Debrief Aug 15th 2019

Stock market trades mixed, Walmart rises on upbeat results and guidance

The S&P 500 is up 0.2% in a mixed session that has included its fair share of trade headlines, corporate news, and economic data. Today’s price action hasn’t been too convincing, though, as none of these events has provided the market any new revelations since yesterday’s 3% sell-off.

The Dow Jones Industrial Average is up 0.3%. The Nasdaq Composite is down 0.1%, and the Russell 200 is down 0.2%. 

Prior to the session, the futures market was signaling for more losses at the open after China vowed countermeasures against the 10% tariff rate that is set to go into effect Sept 1. Disappointing guidance from Cisco Systems (CSCO 46.54, -4.05, -8.0%) added to the negative disposition. 

The following news, however, have helped the broader market regain some composure today: Walmart (WMT 110.99, +4.79, +4.5%) provided solid results and raised its full-year EPS guidance, July retail sales rose 0.7% (Briefing.com consensus 0.3%), and China said it hopes the U.S. can meet it halfway in trade talks (which it has said before). 

At this juncture, leadership has been concentrated among the defensive-oriented S&P 500 sectors — consumer staples (+1.3%), real estate (+1.0%), and utilities (+0.9%). Conversely, the cyclical energy (-0.5%), industrials (-0.3%), information technology (-0.2%), and consumer discretionary (-0.2%) sectors trade lower. 

General Electric (GE 7.95, -1.07, -11.9%) has largely accounted for the weakness in the industrials sector, as shares fall more than 10% following a critical report from Bernie Madoff whistleblower Harry Markopolos. The report labeled GE a “bigger fraud than Enron.”

Essentially, the market appears to be tilting positive on reassurance that the U.S. consumer is still in good shape, while hoping that trade relations can improve despite no evidence to suggest otherwise. There remains underlying growth concerns, though, evidenced by lower oil prices ($54.42, -0.81, -1.5%) and the continued flight to safety in U.S. Treasuries, which has driven yields lower again.

The 2-yr yield is down eight basis points to 1.50%, and the 10-yr yield is down five basis points to 1.53%. The U.S. Dollar Index is up 0.2% to 98.18.

Reviewing today’s heavy dose of economic data:

  • Retail sales increased 0.7% m/m in July (Briefing.com consensus 0.3%) and were up 1.0%, excluding autos (Briefing.com consensus 0.3%).
    • The key takeaway from the report is that it offered a clear reminder that the U.S. consumer is still in good shape, which is key to fending off a recession.
  • Initial claims for the week ending August 10 increased by 9,000 to 220,000 (Briefing.com consensus 215,000). Continuing claims for the week ending August 3 jumped by 39,000 to 1.726 million.
    • The key takeaway from the report is that there wasn’t any meaningful shift in the underlying trend (which is solid) for initial claims, as the four-week moving average moved up just 1,000 to a low 213,750.
  • Nonfarm business sector productivity increased 2.3% in the second quarter (Briefing.com consensus 1.3%) after increasing a revised 3.5% in Q1 (from 3.4%), according to the preliminary reading. Unit labor costs increased 2.4% in the second quarter (Briefing.com consensus 1.6%) after increasing a revised 5.5% (from -1.6%) in Q1.
    • The key takeaway from the report is the improved trend in productivity, which was up 1.8% from the second quarter of 2018 to the second quarter of 2019 versus the annual average of 1.3% for 2018 and 2017, and 0.3% in 2016.
  • Industrial production decreased 0.2% in July (Briefing.com consensus 0.1%) after increasing a revised 0.2% (from 0.0%) in June. The total industry capacity utilization rate fell to 77.5% (Briefing.com consensus 77.8%) from a revised 77.8% (from 77.9%) in June.
    • The key takeaway from the report is that the July decrease in industrial production has reduced the yr/yr growth rate to just 0.5%.
  • The Empire State Manufacturing Survey for August increased to 4.8 (Briefing.com consensus 1.1) from the prior month’s reading of 4.3.
  • The Philadelphia Fed Index for August came in at 16.8 (Briefing.com consensus 10.0), below the 21.8 reading in July.
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