Retail Roundup Continues, With Dick's Earnings Coming In Strong And Nordstrom Later

Numbers are numbers, but some mean more than others. For the Dow Jones Industrial Average ($DJI), 30,000 holds a special place and it looms straight ahead. 

Any big round number has allure, but 30,000 might mean more to some veteran investors who may remember a 1999 book that predicted the average would eventually reach 36,000. At the time, some laughed off that projection, and it seemed a bit hard to believe when the dot-com crash and the Great Recession happened back-to-back not long afterward. At one point in 2009, the $DJI fell below 7,000, and even 10,000 seemed like a stretch. 

Less than 12 years later and just four years after first hitting 20,000, the $DJI has 30,000 in its sights. It’s unclear if it can be taken out anytime soon, and even if it does, the 30 stocks in the $DJI are just a small snapshot of the market. But psychological significance counts for something. If cyclical sectors like the Industrials and Financials that dominate the $DJI continue to gain over the less well-represented Tech stocks, it might push the $DJI closer to the big 3-0. 

With Thanksgiving just two days away, don’t be surprised if volume starts dropping today and tomorrow. By Friday, it could slow to a trickle. Anyone thinking about getting into or out of trades right now should consider extra care, because price moves might get more dramatic as people depart for their long weekends. 

Before leaving, don’t forget to check the latest retail results. The joke around Wall Street these days is if a retail company beats analysts’ earnings estimates, people ask, “OK, how much is the stock down?” It’s the case today with Urban Outfitters, Inc. URBN, Dollar Tree, Inc. DLTR, and Best Buy Co Inc BBY. They’re all beating and not getting rewarded. 

Basically, to some investors, nothing is good enough. BBY dominated almost every aspect of earnings, including same-store sales, digital sales, overall revenue, and profits. Not good enough, apparently, for Wall Street, which sent shares down slightly in pre-market trading. Maybe the lack of guidance from BBY is the culprit. Also, the stock has been on a tear since last spring so maybe some of the positive news was built in. 

 If your Thanksgiving plans include a socially-distanced round of golf, maybe you already had a sense that Dick’s Sporting Goods Inc DKS would have a strong quarter. They did, and the stock rose in pre-market trading. With gyms closing in many areas, DKS may get more traction in coming weeks and months. People are snapping up exercise equipment, and the company easily beat Wall Street’s expectations. Shares didn’t get too big a boost, maybe because they’ve already tripled from the March lows. 

Besides earnings, early focus turned to Washington as investors appeared to cheer transition-related events there (the election finally looks over) and the incoming Biden administration’s cabinet appointments. One in particular.

Market Cheers Yellen’s Hike...To Treasury Secretary

After nearly three years, it appears investors might once again start talking about “Yellen and company”, and the market seems happy about it. Janet Yellen—often thought of as a “dove” when she was head of the Fed until early 2018—may become Treasury secretary under Joe Biden, media outlets reported. Stocks bounced late in the session Monday when the headlines popped, perhaps because many investors think of Yellen as someone who supports Washington coming to the aid of the economy.

It’s interesting to see the reaction just a few days after the market slumped on current Treasury Secretary Steven Mnuchin’s announcement that he’d move to end most of the Fed’s special pandemic lending facilities on Dec. 31. Wall Street apparently didn’t appreciate Mnuchin’s move, but the feeling Monday appeared to be that a Yellen-led Treasury would work more hand in hand with a Jerome Powell-led Fed. Powell’s term ends in early 2022 and it’s way too soon to speculate if he’d be renominated by Biden. However, Powell has proven quite willing to use monetary policy in support of economic growth after a hawkish beginning. 

With continued good vaccine news, the election retreating into the past, and Janet Yellen being a favorite of Wall Street, you’ve got all the makings of a rally. Even General Electric Company GE is back in double-digits.

Checking the old risk horsemen, bonds are down slightly this morning and so is volatility. The Cboe Volatility Index (VIX) briefly fell below 22 today, nearing its August post-pandemic lows. Crude rose to its highest levels since March.

No Holiday Break For Data, Earnings

After a data-light Monday, numbers begin showing up again today with consumer confidence soon after the open. Analysts project November’s headline at 96.5, down from the prior 100.9, according to research firm Briefing.com. The Expectations meter fell in October from September, so consider keeping an eye on that one to see if recent virus shutdowns and weakening data might have reduced consumer hopes for economic improvement. 

Wednesday brings the government’s second estimate for Q3 gross domestic product. Last time out, the seasonally-adjusted growth rate came in at an amazing 33.1%, and analysts on Wall Street don’t expect that number to change much the second time around. Keep in mind, too, that the “seasonally adjusted” part is important. Actual growth in Q3 was a lot lower than that, and the economy hasn’t gotten back to where it was before COVID-19.

Earnings also play a big role today, with retail still in the driver’s seat. This afternoon brings Gap Inc GPS and Nordstrom, Inc. JWN, among others (see more below on JWN). Also HP Inc HPQ delivers its quarterly stats later today, and it’s often a good barometer of business trends thanks to the company touching so many of the machines people use to do their jobs. Perhaps consider listening to the call to get a look at how they see global business trends shaping up. 

Speaking of trends, the week began with risk-on appearing to come back into style after a less than staggering end to last week. Bond yields moved a bit higher while gold and volatility pulled back. Let’s see if this can spill over into today’s trading.

CHART OF THE DAY: THE GROWTH/VALUE DEBATE. Though growth-oriented shares—such as those represented in the Russell 1000 Growth Index (RLG—purple line)—led the rally earlier in 2020, it’s the Russell 1000 Value Index (RLV—candlestick) that’s ruled the roost in recent days, including Monday. Is this a sign of a shift, or simply a resetting of a pendulum that had swung too far in one direction? Data source: FTSE Russell Indexes.  Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

Value: Flavor of the Month, or Menu Mainstay? Like the cola wars and the creamy-vs.-chunky peanut butter debate, growth and value investing each have their adherents, and over long stretches, each has had its day in the sun. And after several years of growth having the upper hand—think Tesla Inc TSLA, Netflix Inc NFLX, and its fellow FAANGs for example—value stocks look to be back in vogue (see chart above). But does it have staying power? Part of the answer— according to JPMorgan Chase & Co. JPM Asset Management’s Patrik Schoewitz—lies in bond yields. “Financials are a big part of the value universe and they like higher bond yields,” he said in a CNBC interview Monday. 

With the yield on the 10-year Treasuries struggling to make it out of the sub-1% range since the start of the pandemic, and with the Fed and other central banks steadfast in their commitment to doing “whatever it takes” to keep rates in check, there could be limited upside to the value play. Still, there’s a lot to like in value-land. Many are historical dividend-payers with solid balance sheets that can likely withstand some market tumult. And considering the run growth has had over the past several years, many growth high-flyers could be hard-pressed to meet the lofty expectation already priced into their shares.        

At the High End: One company that by its very nature faces a tougher hurdle during COVID-19 than some other retailers is Nordstrom, Inc. JWN, which is expected to report this afternoon. What is JWN selling you? Not just shoes or shirts, but an experience. And with COVID-19 raging, that puts them in the toughest realm of all. Yes they could pick up some customers online, but then how does a company that traditionally distinguished itself with amazing customer service differentiate itself from the Target Corporation TGT of the world (meaning no disrespect to TGT, of course). 

That’s the conundrum for high-end retailers, at least until we get a vaccine. Because it’s hard to believe people would be willing to pay more online at JWN than they would for the same product online at TGT or Amazon.com, Inc. AMZN. The real question for all retail companies now is online sales. Have they been able to compete there and pick up their game? After the holidays, the question for retail becomes, will people be able to go back into stores?

Stimulus Could Take Longer: How likely is a government stimulus by the time holiday shoppers start getting their credit card bills in mid-January? Probably not very. The new Congress will have just been seated and the new president won’t be taking office until Jan. 20. The issues under debate aren’t easy, or there would have been a second stimulus way before now. A new Congress means a new debate, and winter is going to likely be a tough time for our country if shutdowns continue. It’s certainly possible we could see a stimulus approved sometime in Q1, but even then, it takes a long time for that money to work its way through the system, so the Q2 could be slow, too. The Fed’s been a big advocate lately of fiscal stimulus. Tomorrow investors can see whether that subject came up at the Fed’s last meeting with release of the Fed minutes.

TD Ameritrade® commentary for educational purposes only. Member SIPC.

Photo by Victor Xok on Unsplash