Record-Setting Rally Hits a Wall as Retail Sales Disappoint

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We’ve had five consecutive days of record closes for two of the major indices, but the streak finally came to an end on Tuesday amid sluggish retail numbers. And we’ll be getting even more retail news tomorrow, along with the minutes from the Fed’s July meeting.

The Dow dropped 0.79% (or about 282 points) to 35,343.28, while the S&P slipped 0.71% to 4448.08. This marks the first negative close for these indices since Monday of last week (August 9). Those five days of gains were also five days of record highs.

Meanwhile, the NASDAQ continued to lag its counterparts as tech remains out of favor for now. The index saw the stiffest drop on a percentage basis today by slipping 0.93% (or about 137 points) to 14,656.18.

Retail sales for July dropped 1.1%, which was quite a bit worse than expectations for a loss of only around 0.3%. It was also a change in tone from the previous month’s surprising and welcomed advance of 0.6%. The data suggests that the delta variant may be limiting economic growth at present.

Staying with retail a little longer, two of that space’s biggest players reported before the bell on Tuesday. Walmart (NYSE:WMT) and Home Depot (NYSE:HD) each beat Zacks Consensus Estimates on the top and bottom lines, though the market’s reaction differed.

WMT, the country’s biggest retailer, beat our earnings estimate by more than 14% and even raised its guidance for full year U.S. comp sales. Shares were only down 0.03%, which isn’t too bad when you consider how stingy this market can be when rewarding strong performances.

But home improvement giant HD plunged nearly 4.3% today even though it beat earnings by 2.2% on net sales that rose over 8%. The problem was that total same-store sales of 4.5% missed expectations of 5% or more, as people started getting out instead of focusing on home projects. Same-store sales for the U.S. were also below forecasts.

There’s some big retail earnings scheduled for tomorrow as well with Target (NYSE:TGT) and Lowe’s (LOW) taking centerstage before the bell. Meanwhile, NVIDIA (NASDAQ:NVDA) and Cisco (NASDAQ:CSCO) are scheduled for after the bell.

We’ll also see Fed minutes for the July meeting released on Wednesday. Last time, members decided to stay the course with their monetary support for now, but did seem to be inching toward discussing some curtailment. Investors will be watching closely to see if such movement has accelerated.

Today's Portfolio Highlights:

Counterstrike: The market’s five-day, record-setting winning streak was impressive, but Jeremy has always been ready for some pullback. Therefore, he continued to protect the portfolio on Tuesday by doubling down on ProShares Ultra VIX ShortTerm Futures ETF (UVXY). He added 4% to the position originally bought earlier this month. The fund didn’t do well as the market continued to grind higher, but the editor thinks the reversal from yesterday’s highs may change things. UVXY moves 1.5X the VIX and was a double-digit winner for this portfolio last month. Meanwhile, the editor short sold Twilio (NYSE:TWLO) with an 8% allocation, as the cloud communications platform provider has “fallen apart and broken the 200-day MA”. Declining earnings estimates has pulled the stock down to a Zacks Rank #4 (Sell). Finally, the portfolio also sold Groupon (NASDAQ:GRPN) today. Read the full write-up for more on all these moves. By the way, it just so happens that UVXY was a top performer in this rough session by climbing nearly 4.7% while the S&P dipped by 0.7%.

Options Trader: The premium for the portfolio’s December 540.00 Call in Thermo Fisher (NYSE:TMO) had doubled, so it was time for Kevin to reposition. He sold to close that option on Tuesday for a 146.2% return and then bought to open a December 600.00 Call with the original dollars committed. Now, the service will still be making money as TMO increases, but won’t lose any principal if the stock declines. See the complete commentary for all the specifics.

Surprise Trader: Ever since going public, BJs Wholesale Club (BJ) has been beating the Zacks Consensus Estimate. Dave doesn’t expect that will change when this operator of membership warehouse clubs reports again on Thursday before the bell. This Zacks Rank #2 (Buy) beat by 26.3% last time and has a positive Earnings ESP heading into the quarter. The editor added BJ on Tuesday with a 12.5% allocation. Read the full write-up for more on this new addition.

TAZR Trader: There’s a possibility that the market heaviness we saw today could accelerate to the downside, so Kevin played a little defense on Tuesday by adding ProShares UltraPro Short QQQ ETF (SQQQ). See the complete commentary for more.

Zacks Short Sell List: This week's adjustment changed two positions. The portfolio short-covered Marvell Technology (NASDAQ:MRVL) and The AZEK Company (AZEK), and then replaced those names by adding Amazon (NASDAQ:AMZN) and CoStar Group (NASDAQ:CSGP). Learn more about this emotion-free portfolio that takes advantage of falling and volatile markets by reading the Short Sell List Trader Guide. Meanwhile, as you might expect on such a dreary day, this portfolio had the best performer on Tuesday as its short in JOYY Inc. (NASDAQ:YY) rose nearly 5.7%.

All the Best,
Jim Giaquinto