Wednesday, November 15, 2017

Markets drop on disappointing earnings forecast by Target

Dow gave back 89, decliners over advancers 2-1 & NAZ fell 22.  The MLP index fell another 1+ to the 257s & the REIT index lost 1+ to the 361s.  Junk bond funds continued weak & Treasuries climbed higher.  Oil declined in the 55s & gold fell 2 to 1280.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil55.12

GC=FGold   1,281.40

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US retail sales increased last month after a bigger Sep advance than previously estimated, indicating resilient demand heading into the holiday shopping season, according to Commerce Dept.  Overall sales rose 0.2% (est. unch.) after a revised 1.9% increase in prior month.  Purchases at automobile dealers climbed 0.7% after surging 4.6%. The retail-control group sales, which are used to calculate GDP & exclude food services, auto dealers, building materials stores & gasoline stations, advanced 0.3% following an upwardly revised 0.5% increase in Sep.  9 of 13 major retail categories showed month-over-month increases in the value of sales. The  broad-based advance in Oct sales & a stronger hand-off from an upwardly revised Sep show American consumers will continue to fuel the economy in Q4.  Steady hiring, rising asset values & limited inflation are underpinning consumer spending.  Vehicle sales were firmer, though the gain was smaller than the previous month when the recovery from 2 hurricanes boosted purchases. Industry figures released earlier showed sales of cars & light trucks cooled in Oct from the fastest annualized rate since 2005.  Among other retailers, sales accelerated in Oct at furniture stores, electronics & appliances outlets, restaurants, clothing stores & sporting goods merchants.  But a decline in gasoline costs weighed on receipts at service stations. 

Gain in U.S. Retail Sales Last Month Signals Steady Demand

US inflation excluding food & fuel accelerated on an annual basis for the first time since Jan, a pickup that will be welcomed by Fed officials debating the pace of interest-rate increases, a Labor Dept report showed.  Consumer-price index rose 0.1% M/M (matching est.) after 0.5% rise the prior month & increased 2% Y/Y (matching est.).  Excluding food & energy, core CPI rose 0.2% M/M (matching est.) after rising 0.1% & climbed 1.8% Y/Y (est. 1.7%) after a 1.7% advance.  Increase driven by shelter, medical care; used-vehicle prices rose 0.7%, ending 9-month streak of declines.  While a 1% drop in energy prices weighed on overall inflation, the rise in the core gauge was relatively broad- based.  Housing costs were a significant factor, with the shelter index climbing 0.3%.   Prices for medical care, education, air fares & auto insurance also rose, while new vehicles, apparel & recreation showed declines.  Prices for wireless-phone services & hotel stays both increased. In recent months, several Fed officials have cited changes in these costs as transitory factors affecting inflation.  The report may help reinforce expectations that the Fed will raise interest rates in Dec for the 3rd time this year, after central bank officials began to wonder if there was a breakdown in their long-held assumption that low unemployment would help push up inflation.  The data will play a role in the timing & number of rate increases in 2018; officials next month will update their projections for the benchmark interest rate.  Policy makers' preferred gauge of inflation, a separate figure based on consumer purchases & issued by the Commerce Dept, has matched or exceeded the Fed's 2% goal in only 2 months of the past 5 years.  Some central bank officials focus on the measure excluding food & energy, which is also below their target.  Businesses may get more pricing power over time amid rising household demand, the tightening job market & improving global economies.  For consumers, though, inflation remains relatively contained, boosting their purchasing power at a time wages have been growing modestly.

U.S. Core-Inflation Gauge Picks Up for First Time Since January

Target (TGT), a Dividend Aristocrat, issued a disappointing profit forecast for the key holiday qtr as it continues to depend on price cuts to drive traffic to its stores and online, sending its shares down.  The retailer forecast adjusted EPS of $1.05-1.25 per share for the qtr ending Jan 2018, considerably below the estimate of $1.24.  TGT expected same-store sales in the year-end holiday qtr to remain flat or increase by up to 2%.  The company has slashed prices on thousands of items this year to lure back consumers that have turned increasingly to rivals.  In Oct, TGT said most of its holiday gift assortment had been priced at under $15 & that it would invest in free shipping beginning in Nov, the start of the most important shopping season of the year.  The compny reported a slightly better-than-expected Q3 gross margin rate of 29.7%, slipping from 29.85 as cost cuts helped mitigate damage from promotional pricing.  Same-store sales in the Q3 also topped estimates, rising 0.9% as the price cuts drove a 24% jump in comparable online sales.  Analysts had expected a 0.4% increase.  In a turnaround bid announced in Feb, CEO Brian Cornell vowed this year to double the number of small-format stores, invest heavily in e-commerce, aggressively promote its products & keep grocery prices low to compete with its rivals.  Excluding items, Q3 EPS was 91¢, beating the estimate of 86¢.  Sales rose 1.4% to $16.67B, higher than the estimate of $16.61B.  The stock plunged 9.74 (10%) today.
If you would like to learn more about TGT, click on this link:

Target's holiday-quarter profit forecast disappoints, shares dip

The holiday season is not beginning with a lot of cheer after the forecast by TGT.  However, that may be a modest influence when compared with the chaos in DC over tax reform.  That is stuck in neutral.  Some of the inaction has to be expected.  That's how those guys work.  But time is running out to get the work done by year-end while there is little sense of urgency from those guys.  The Dow chart below shows that bullish enthusiasm is waning.  The long bull market could be exhausted.

Dow Jones Industrials


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