Retail Still Front And Center As Holiday Week Kicks Off

Thanksgiving feasts might be on your mind as the week starts, but Black Friday and Cyber Monday have dollar signs spinning in the eyes of retailers who hope you’ll work off calories in the store aisles and online. 

Shopping season—a few days shorter than usual this year because of the late Thanksgiving date—already got underway a few weeks ago. Still, the rubber hits the road this Friday and next Monday, and those sales figures could reinforce signs of a healthy consumer or raise questions, depending on how things go. We should start getting a sense by as soon as Friday morning, since many sales start very early that day.

Strong earnings results last week from some of the more closely watched retailers, including JW Nordstrom, Inc. JWN, Gap Inc GPS, and Foot Locker, Inc. FL, certainly helped bring a holiday glow, though Home Depot Inc HD and Macy’s Inc M didn’t do as well.

The usual suspects are likely going to be front and center on Black Friday and Cyber Monday, including Amazon.com, Inc. AMZN, Target (TGT), Apple Inc. AAPL and Walmart Inc WMT. Shares of all three could be more volatile than usual over the next week or two thanks to all the attention.

Getting back to today’s pending market action, people seemed to welcome overnight news that China’s decided to tighten intellectual property rules, leading to hopes that maybe a Phase One trade deal could be on the horizon. A U.S. administration official said over the weekend that one could happen before the end of the year, but many market participants are probably going to be skeptical until more details emerge.

Another positive development to start the week was JP Morgan Chase & Co JPM coming out with a report saying 2020 would be a good year for stocks. They kind of changed their tune from earlier this year, when the firm sounded less bullish. 

It was a big deal weekend with French luxury behemoth LVMH reaching a deal to buy Tiffany & Co. TIF, and Charles Schwab Corporation SCHW announcing it will buy TD Ameritrade Holding Corp. AMTD.

There’s not a huge amount on the calendar today, though Fed Chairman Jerome Powell is scheduled to speak in Rhode Island tonight. The title of his speech, “Building on the Gains from the Long Expansion,” sounds interesting, but also seems unlikely to shed much new light on the rate picture. We shall see. 

Technically, Not A Bad Finish

While last week was the first to finish in the red for major stock indices in more than a month, it was constructive from a technical standpoint that the S&P 500 Index (SPX) finished slightly higher Friday and stayed over the 3100 level. That psychological support point has held up pretty well over the last few sessions even as rumors swirled around the trade situation. Sometimes when a support level gets tested and not broken, it can imply a certain level of underlying strength, though there’s no guarantee it can hold up if there’s bad fundamental news.

At this point, a lot of investors might be tuning out trade headlines because they change faster than the weather in Chicago. It seems like there’s a new one every hour or two, and you could get whiplash trying to trade based on the latest rumors and innuendo. It’s probably a better idea to consider keeping your long-term financial goals first in mind, and if you do want to trade regularly, not basing it on whatever noise about trade talks might be affecting the market at that time.

For what it’s worth, the talk sounded more positive Friday, and that might be why markets got a lift. We’ll see if it holds up today, and also keep an eye out for any signs of confirmation that U.S. negotiators are headed to Beijing this week. The other thing that’s probably going to increasingly come into focus is that Dec. 15 deadline for new U.S. tariffs. The last few times, these deadlines ended up getting pushed back. If this one does take effect, it could have major repercussions because these tariffs affect a lot of popular consumer goods.

Since we’re talking consumer goods, the ultimate consumer good is arguably a fancy car. Tesla Inc TSLA put on the brakes Friday despite the company unveiling its pickup truck. Still, shares have really been motoring along since last summer after the stock tested and bounced off what’s often been an inflection point for it at around $200 a share.

Consumer sentiment—important whether you’re selling cars or clothes—moved a little higher in the most recent University of Michigan survey Friday. The new reading “suggests consumer spending activity should remain supportive for the U.S. economy,” Briefing.com observed.

Easing Up

If people are nervous about tariffs, it’s not showing up in most of the market’s major third rails, including volatility, gold, and bonds. All three stepped back to end the old week, with the Cboe Volatility Index sliding back down toward the 12 handle from recent highs above 13. Gold’s attempted run at $1,500 an ounce sputtered badly over the last few sessions, and 10-year Treasury yields have bounced back above 1.75% after posting a low near 1.7%. Financials edged higher Friday as the rate situation started to look more positive for their profit margins.

This week could potentially see volume drift lower ahead of Thursday’s Thanksgiving holiday, with thin trading likely on Friday when trading shuts down earlier than normal. If you do plan to participate in the market these next few sessions, remember that thin trade can sometimes mean volatility, so extra care might be important. 

CHART OF THE DAY: WHAT’S GOING ON HERE? That flat purple line up at the top of this year-to-date chart is the U.S. dollar index ($DXY). It’s up about 1% this year. The other object tracked is the 10-year Treasury yield (TNX-candlestick). In normal times, falling U.S. rates might cause the dollar to weaken, but that isn’t happening this year. That could reflect a lot of things, but possibly two main ones: First, negative overseas yields could be pulling down yields in the U.S., and second, people may be gravitating toward the dollar as a defense against potential economic weakness outside the U.S. Data Sources: ICE, Cboe Global Markets. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

Rate Runway: One potential positive heading into the new year is that if rates stay at current levels or fall slightly in 2020 (based on futures market projections) it could help temper some of the potential negative impact of sluggish earnings growth. The idea is that companies might be able to more easily maintain or improve profit margins by borrowing money at low rates, and also that dividend-paying stocks might gain ground as investors reach for yield in the equities space instead of in Treasuries. However, keep in mind that we’re already near all-time highs for the major indices, and P/E’s have been heading up as earnings look like they’re going to decline year-over-year in Q3. So it’s possible that some or much of the impact of low rates might be baked in. That said, some analysts don’t believe P/E’s are all that elevated now, considering how low rates look and the lack of expectations for rate hikes anytime soon.

Rotation Inclination? Some of the cyclical sectors that had come under pressure earlier last week rebounded slightly on Friday, including Industrials, Consumer Discretionary, and Materials. The question is whether this lasts into the new week. Some analysts believe there’s a rotation going on into either value areas or more beaten-down sectors like Energy, perhaps at the expense of some of the best-performing sectors of recent weeks like Technology and its sub-sector semiconductors (which inched lower again Friday). That school of thought also suggests some individual stocks like Apple and Microsoft Corporation MSFT—which helped lead the charge higher over the last month or two—might start to lose a bit of favor, which arguably has been the case to some extent, as both of those names were flat to lower last week. 

Another recent trend is a move by some investors from corporate bonds back into short-term Treasury bonds, analysts note. This might be one reason that Treasury yields, which move in the opposite direction of the underlying Treasury note, pulled back in mid-November, and would appear to signal a bit of caution here as stocks reached all-time highs. Two other areas that might be worth watching this week for signs of rotation include transports and small-caps, both of which haven’t really participated as much in the recent rally. If a rotation is going on, those two might benefit. 

Please Pass the Stuffing (and the Data): You’d think Thanksgiving week would be quiet on the data calendar, but there’s actually a pretty big basketful of numbers coming at us before we sit down for our turkey this Thursday. Maybe most important is Wednesday’s Personal Consumption Expenditures (PCE) readings for October, which could give investors (and the Fed) better insight into the inflation picture. We’ll talk more about the possible numbers tomorrow.

That same morning brings the government’s second estimate of Q3 gross domestic product (GDP). It came in at a lowly 1.9% the first time around, so we’ll see if anything changed. New home sales for October come out tomorrow morning after last week’s existing home sales showed prices continuing to climb the ladder but sales improving month-over-month and year-over-year. Chicago PMI wraps up the week on Friday, so remember to save some room for that one after the holiday.

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