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Stocks Rebound From Morning Lows

Published 08/30/2017, 03:01 AM
Updated 07/09/2023, 06:31 AM

After showing early discontent for North Korea's latest missile test over Japan, which rattled the global markets overnight, the U.S. equity markets were able to bounce back to finish out the day in the green. Treasury yields were lower and the US dollar was nearly flat even after an upbeat Consumer Confidence report, as global monetary policy and U.S. political uncertainty and the impact of Hurricane Harvey continued to be an overhang. Crude oil prices were mixed and gold pared its recent rally.

The Dow Jones Industrial Average (DJIA) rose 57 points (0.3%) to 21,865, the S&P 500 Index added 2 points (0.1%) to 2,446, and the NASDAQ Composite gained 19 points (0.3%) to 6,302. In moderate volume, 680 million shares were traded on the NYSE and 1.6 billion shares changed hands on the NASDAQ. WTI crude oil ticked $0.13 lower to $46.44 per barrel and wholesale gasoline rose $0.03 at $1.60 per gallon. Elsewhere, the Bloomberg gold spot price lost $2.24 to $1,307.89 per ounce, and the dollar index, a comparison of the U.S. dollar to six major world currencies, was nearly unchanged at 92.28.

Best Buy Co Inc. (NYSE:BBY $55) reported Q2 earnings-per-share (EPS) of $0.67, or $0.69 ex-items, versus the $0.63 FactSet estimate, as revenues rose 4.8% year-over-year (y/y) to $8.9 billion, above the projected $8.7 billion. Q2 same-store sales grew 5.4% y/y, topping the expected 2.1% increase. The company noted continued healthy consumer confidence and stronger demand for technology products. BBY issued Q3 guidance that easily exceeded estimates, while raising its full-year revenue outlook. However, shares—which have rallied sharply over the past year—fell, as the Street scrutinized the company's commentary on its conference call with analysts as it appeared to try to temper expectations of future performance after the blowout quarter.

The Finish Line Inc (NASDAQ:FINL $9) tumbled after the athletic shoe and apparel retailer preannounced that its Q2 EPS, revenue and same-store sales are expected to be well below the Street's expectations. The company also slashed its full-year profit and same-store sales guidance. FINL said the marketplace for athletic footwear became much more promotional resulting in challenging sales and gross margin trends. Separately, the company announced that it has adopted a shareholder rights plan, intended to reduce the likelihood that any person or group would gain control of Finish Line through open market accumulation or coercive takeover tactics.

Acorda Therapeutics Inc (NASDAQ:ACOR $19) dropped decisively after the company received a Refusal to File (RTF) letter from the U.S. Food and Drug Administration (FDA) regarding its New Drug Application (NDA) for its Parkinson's disease treatment. The FDA said the NDA was not sufficiently complete to permit a substantive review. ACOR said it will seek immediate guidance to respond to the issues.

Consumer Confidence improves to a five-month high

The Consumer Confidence Index improved to 122.9 in August from the downwardly revised 120.0 in July, and compared to the Bloomberg estimate of a 120.7 reading. This is the highest level since March as both sentiment toward the present situation and expectations of business conditions for the next six months rose. On employment, the labor differential, consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—jumped to 18.1 from the 14.5 level posted in July.

The 20-city composite S&P CoreLogic Case-Shiller Home Price Index showed a 5.7% gain in home prices y/y in June, versus expectations of a 5.6% increase. Month-over-month (m/m), home prices were up 0.1% on a seasonally adjusted basis for June, matching forecasts.

Treasuries were higher, as the yields on the 2-Year and the 10-Year notes fell 3 basis points (bps) to 1.31% and 2.12%, respectively, while the 30-Year bond rate declined 2 bps to 2.74%. Treasuries are finding demand and the U.S. dollar index continues to fall to a level not seen in over two years amid the flare-up in tensions toward North Korea after its latest missile test, which joins festering global monetary policy and U.S. political uncertainties, along with the continued damage being done in the aftermath of Hurricane Harvey.

Tomorrow, the economic calendar will offer the second look (of three) at Q2 Gross Domestic Product, the broadest measure of economic output, with economists anticipating a slight upward revision to an annualized q/q rate of expansion of 2.7% from the 2.6% posted in the first release, while personal consumption is expected to be upwardly adjusted to an increase of 3.0% from the 2.8% reported previously, while the inflation gauges of the GDP Price Index and core PCE are forecasted to remain at their respective reading of 1.0% and 0.9%.

As well, employment data is on tap ahead of Friday's key labor report in the form of the ADP Employment Change report, with the measure of private sector payrolls expected to show an increase of 185,000 jobs for August following the 178,000 registered in July. MBA Mortgage Applications will also be released.

Europe and Asia geopolitical concerns ramp up

The European equity markets finished broadly lower, with the euro extending its recent rally to a level versus the U.S. dollar that has not been seen since early 2015, while North Korea's latest missile test over Japan fostered a pullback in risk appetites. The euro has rallied in the wake of Friday's speeches from Fed Chair Janet Yellen and European Central Bank President Mario Draghi, which failed to deliver any new clues to changes in monetary policy.

The British pound was little changed versus the greenback and bond yields in the region traded lower. The U.K. markets returned to action following yesterday's holiday break and focus was also on the resumption of Brexit negotiations with the European Union. In economic news, German consumer confidence ticked higher unexpectedly for September and France posted a 1.7% y/y rise in Q2 GDP, a bit shy of the 1.8% gain that was expected, but an acceleration from the 1.1% growth posted in Q1.

Stocks in Asia finished lower but recouped some losses late in the session. Lingering global monetary policy and U.S. political uncertainties, and the fallout from Hurricane Harvey in Texas, were met with a flare-up in risk aversion as tensions with North Korea ramped up again after the country conducted its latest missile test over Japan.

The yen rallied to weigh on Japanese equities, along with an unexpected decrease in the nation's household spending for July. Markets in Hong Kong, Australia, South Korea and India all traded lower as well. However, stocks in mainland China bucked the trend, finishing modestly higher.

Tomorrow's international economic calendar will present retail sales, trade data from Japan, CPI from Spain and Germany, confidence figures from the Eurozone, and PPI from Italy.

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