Benchmarks On A Weak Open

The major indexes are on track for another weak open, but a lot will depend on the market’s reading of the minutes of the last Fed meeting that come out later this afternoon. The never-ending parade of weak retail sector earnings reports continues this morning, with Target (TGT) becoming the latest retailer to come out with disappointing results.

A key change in the Fed statement after the April meeting was the absence of any reference to global risks, which had been part of the statement for some time. The discussion around that issue in the April meeting will be interesting to come through in the minutes. This is particularly notable with many in the market, including a number of Fed officials, referring to the ‘Brexit’ vote a week after the June Fed meeting as causing enough of market uncertainty to force the Fed’s hand. We should also get a clearer sense of the committee’s assessment of domestic economic conditions, which got off to a shaky start but appear to have stabilized lately.

The April statement referred to continued momentum in labor markets while acknowledging some slowdown in the economy. The jobs report that came after the April Fed meeting missed estimates, which played a big part in setting the market’s Fed expectations. Market participants don’t expect a rate hike at next month’s meeting, but I continue to believe that a strong jobs reading ahead of the June meeting will put June back into play.

On the earnings front, Target became the latest retailer to come out with weak same-store sales even as it beat EPS estimates. More important than the Q1 results is the mass retailer’s tepid guidance for the current period, which follows the trend we saw repeatedly last week from department stores. As was the case with Macy’s (M) and others, Target appears to have problems in the apparel category as well. All of this doesn’t offer inspiring read-throughs for tomorrow’s Wal-Mart (NYSE:WMT) (WMT) report.

The Q1 earnings season was weak all around, but it was particularly weak for retailers. But as we have stated repeatedly in this space before, the retail disappointment isn’t a reflection of consumer spending weakness, but rather a result of changes to consumer behavior who are spending more on-line instead of in stores. Unlike the department stores, Target and Wal-Mart have compelling digital strategies that should help their competitive positioning relative to Amazon (NASDAQ:AMZN) (AMZN) in the long run.


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