US stocks climb after major US retailers post solid earnings

Thursday, August 22, 2019

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Strong earnings reports from several big retailers helped drive stocks broadly higher on Wall Street yesterday as the market bounced back from its first loss in four days.

Target notched its biggest-ever gain, while Lowe's had its best day in more than a year, leading a broad rally in companies that rely on consumer spending.

Nordstrom, Kohl's, Gap and other retailers closed higher.

Technology companies accounted for a big share of the gains. Financial stocks rose as bond prices fell, pushing yields higher. Real estate and materials stocks lagged the rest of the market.

Investors have been worried that US economic and corporate earnings growth could stumble under the strain of a slowing global economy and the costly trade war between the US and China. But the strong quarterly results from the retailers encouraged traders, who see the performance as a sign that US consumers, also account for 70% of US economic growth, are healthy.

“We had a couple of great earnings reports this morning, especially Target, which is a good barometer of the consumer,” said Dan Heckman, national investment consultant at US Bank Wealth Management. “The consumer still appears to be spending and doing well.”

The S&P 500 rose 23.92 points, or 0.8%, to 2,924.43. The Dow Jones Industrial Average gained 240.29 points, or 0.9%, to 26,202.73. The Nasdaq added 71.65 points, or 0.9%, to 8,020.21. The Russell 2000 index of smaller company stocks picked up 11.84 points, or 0.8%, to 1,509.85.

Major indexes in Europe also finished broadly higher.

The stock market has been volatile this month as investors try to parse conflicting signals on the US economy and determine whether a recession is on the way. A key concern is that the US-Chinese tariff war will weigh on global economic growth.

The Trump Administration has imposed a 25% tariff on US$250 billion in Chinese imports. A pending 10% tariff on another US$300 billion in goods would hit everything from toys to clothing and shoes that China ships to the United States; however some 60% of the new tariffs wouldn't go into effect until mid-December, and others were taken off the table altogether.

The potential impact those tariffs could have on US consumers could hurt sales for Target and other big retailers. Home Depot yesterday cut its sales expectations for the year in part because of the potential tariff impact.

A look at Target and Lowe's earnings yesterday appeared to dim investors' concerns about the impact tariffs may have on US consumers.

Target soared 20.4% after the company easily beat profit forecasts for its second quarter. Target has been pushing faster delivery and investing heavily in new private label brands.

Traders also bid up shares in Lowe's sharply higher, after the home improvement retailer's latest quarterly results blew past expectations, buoyed by strong demand for spring goods and sales to contractors. The company's strong quarter came even as it wrestled with lower lumber prices and rough spring weather. The stock jumped 10.4%.

Lowe's solid earnings came a day after rival Home Depot reported strong results of its own. Home Depot added 1.6%.

Investors took a dim view of Cree's latest quarterly results. Shares in the maker of energy-efficient lighting tumbled 15.8% after it issued a weak forecast as it deals with the fallout from the US-China trade war.

Encouraging housing market data sent homebuilders higher. The National Association of Realtors said sales of previously occupied US homes rose 2.5% last month.

The increase is a sign that lower mortgage rates are helping to increase sales, which have been sluggish amid rising housing prices and a stubborn shortage of homes on the market. Hovnanian Enterprises vaulted 18.5% and LGI Homes rose 2.8%.

Traders had a muted reaction to the afternoon release of notes from the Federal Reserve's policymaking meeting last month. The minutes showed officials were divided in their decision to cut interest rates for the first time in a decade.

Investors have been seeking insight into the Fed's willingness to make further interest rate cuts to help shore up the economy. Traders are now looking ahead to Friday, when Fed Chairman Jerome Powell is scheduled to speak at the central bank's annual conference in Jackson Hole, Wyoming.

Traders will be listening for clues as to what Fed officials will cut rates again at its next meeting in September.

“Powell is in a difficult spot in that you have a meeting coming up in September and everybody is looking to him,” said Tom Martin, senior portfolio manager with Globalt Investments. “Even though we want some more information and a nod, one way or the other, toward September, I don't think we're going to get one.”

The Fed cut its key policy rate on July 31 for the first time in more than a decade. It cited a number of “uncertainties” that were threatening the country's decade-long expansion, from Trump's trade battles to slowing global growth.

While the encouraging earnings put investors in a buying mood Wednesday, Heckman noted that August and September are historically some of the weakest months of the year for stocks, so investors should expect more market volatility, particularly if the US and China don't strike a trade deal.

Bond prices fell. The yield on the 10-year Treasury rose to 1.59% from 1.56% late yesterday. It briefly dropped below the two-year Treasury's yield for the first time in a week. This so-called inversion of the US yield curve has accurately predicted the past five recessions.

Crude oil fell 45 cents to settle at US$55.68 a barrel. Brent crude, the international standard, rose 27 cents to close at US$60.30 a barrel. Wholesale gasoline rose 1 cent to US$1.69 per gallon, heating oil climbed 1 cent to US$1.86 per gallon, and Natural gas fell 5 cents to US$2.17 per 1,000 cubic feet.

Gold was unchanged at US$1,504.60 per ounce, silver rose 1 cent to US$17.13 per ounce, and copper rose 1 cent to $2.58 per pound.

The dollar rose to 106.61 Japanese yen from 106.32 yen on yesterday. The euro weakened to US$1.1085 from US$1.1097.


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