Tuesday, August 21, 2018

Markets rise with S&P 500 hitting a new intraday record

Dow shot up 63, advancers over decliners almost 2-1 & NAZ rose 38.  The MLP index fell 2+ to the 287s & the REIT index hardly budged following recent strength.  Junk bond funds crawled higher & Treasuries were sold.  Oil jumped up to the 67s & gold rose 5 to 1199.

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The S&P 500 index returned to an intraday record,  surpassing its previous high of 2872 reached in Jan.  The S&P fresh record comes after Q2 earnings season has basically wrapped up, while some easing trade tensions also supported the markets with China & the US meeting to discuss trade after a tariff exchange.  When it comes to corp results, expectations were high going into Q2 earnings season & even those lofty expectations were surpassed.  S&P 500 companies experienced a 24.6% increase in earnings year-over-year, with the energy sector leading the charge.  Energy companies’ earnings increased 123%, year-over-year.  Materials sector companies saw a 40% increase in earnings & financials a 27.4% gain.

The S&P 500’s return to a record high

The Federal Reserve could be nearing the end of its rate-hiking cycle as headwinds build up to economic growth, Dallas Fed Pres Robert Kaplan said.  As the central bank continues to normalize policy, Kaplan said there likely are 3 or 4 more increases ahead for the Fed's benchmark rate target until it gets to "neutral."  The policymaking FOMC has indicated as many as 6 more hikes ahead.  He said the neutral rate of interest, or one that is neither accommodative nor restrictive, is probably around 2.5-2.75%, compared with the 1.75-2% range where the Fed is currently holding its funds rate.  From here, then, "it would take approximately three or four more federal funds rate increases of a quarter of a percent to get into the range of this estimated neutral level," Kaplan said.  "At this stage, I believe the Federal Reserve should be gradually raising the fed funds rate until we reach this neutral level," he added.  "At that point, I would be inclined to step back and assess the outlook for the economy and look at a range of other factors — including the levels and shape of the Treasury yield curve — before deciding what further actions, if any, might be appropriate."  Kaplan's remarks come as the FOMC is about to release minutes tomorrow from its last meeting, during which the committee opted against raising rates.  However, officials have indicated, & the market expects, that 2 more increases are likely on the way before the end of the year, followed by 3 more in 2019 & at least one more in 2020, taking the funds rate to 3.4%, well above where Kaplan sees it.  Among his concerns are the yield curve, or the spread between rates on various gov bonds.  When short-term rates get higher than long-term rates, that has been a reliable recession indicator for the past 50 years.  While some Fed officials have cautioned against reading too much into a possible inversion, Kaplan said it's cause for concern.  "The longer end of the curve is telling me that, while there is substantial global liquidity and a search for safe assets, expectations for future growth are sluggish — and this is consistent with an expectation that U.S. growth will trend back down to potential," he wrote.  "I do not discount the significance of an inverted yield curve — I believe it is worth paying attention to given the high historical correlation between inversions and recession."  He also expressed his concern about the current debt level.  At $15.7T, the amount of the national debt held by the public is more than 75% of GDP (more than 100% is generally considered a crisis level).  While the tax cuts & additional spending over the past year have created "a fiscal tailwind," that could "turn into a headwind if the U.S. takes steps to moderate its historically high expected path of debt growth," he added.

Dallas Fed president says three or four more rate hikes then 'assess' course ahead

Kohl's (KSS) shares tumbled despite releasing fiscal Q2 earnings that beat estimates & the retailer raised its profit outlook for the year.  KSS, besides its partnership with Amazon (AMZN), is also is investing in finding new uses for its real estate.  It started opening smaller stores & plans to divide some of its larger locations for tenants.  New initiatives appear to be paying off & serving as a traffic driver.  EPS surged to $1.76, compared with $1.24, a year ago.  Analysts expected EPS of $1.64.  Revenue climbed 4% to $4.57B, again ahead of the $4.26B forecast by analysts.  Sales at its stores opened for at least 12 months were up 3.1%, better than the 2.7% increase that analysts were expecting.  The company said online sales increased at a mid-teens percentage rate, fueled by purchases made on mobile devices.  Looking to the full year, KSS expects to earn $4.96-5.36, compared with a prior range of $4.86-5.31.  Analysts were calling for EPS of $5.39 in fiscal 2018.  The stock gained 1.34.
If you would like to learn more about KSS, click on this link;

Kohl's shares slide despite topping Wall Street earnings, sales expectations

Off-price retailer TJX (TJX) blew past quarterly comparable-store sales estimates as big discounts attracted more younger shoppers & generated its 16th consecutive quarter of growth in customer traffic.  Unlike chains which have closed stores & shifted their focus online, TJX has thrived thru a period of uncertainty for major US retailers driven by the growth of  web-based players.  The company's treasure-hunt style marketing technique, based on unpublicized but deep discounts on apparel & accessories, proved to be a hit with younger customers, driving a 34% jump in profit & lifting its shares by 6%.  "We have been attracting new customers to all our divisions, a significant share of whom are younger customers. This is great for our business today and for the future," CEO Ernie Herrman said.  Same-store sales rose 6% in Q2, easily beating the 2.2% increase expected.  The company also raised its same store sales growth forecast to 3-4%, above the estimate for a 2.4% increase.  EPS rose to $1.17, in Q2, from 85¢ a year earlier.  The retailer also raised its full-year adjusted EPS forecast to $4.10-4.14 from a prior outlook of $4.04-4.10.  Comparable store sales in the company's Marmaxx unit, which includes TJ Maxx & Marshalls stores, rose 7%, comfortably beating estimates.  The company said net sales rose 11.6% to $9.33M.  Analysts expected the company to report quarterly EPS of $1.05 on revenue of $9.00B.  The stock rose 4.84.
If you would like to learn more about TKX, click on this link;

TJX beats estimates as big discounts attract young shoppers

It's hard to believe, but stocks keep climbing into record territory.  The NAZ reached a new record near 7900 last month & the S&P 500 hit an intraday record today.  But the big Dow is still 800 below its record made in late Jan.  Not bad considering all the commotion about trade wars which affect the global economy.  Still volume is low.  Meaningful trading will have to wait until vacations are over after Labor Day.

Dow Jones Industrials

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