US equity markets posted a modest intraday reversal yesterday allowing for major indices to close fractionally in the green. The S&P 500 gained 0.18% while the Dow Jones Industrials (+0.11%) and Nasdaq (+0.03%) followed suit. Volume ticked modestly higher on the Nasdaq (+3.73%) and NYSE (+6.62%). This price action and volume profile has dominated the equity trading environment for weeks now. It is not unfamiliar to those that have occupied seats on trading desks in Augusts past.
Underneath the recently placid surface of the broad market indices there have been some note worthy developments this earnings season. Target Stores (TGT) posted a Q2 earnings miss and delivered a one day slide of 6.43% yesterday. For the same reasons, Lowe's Companies (NYSE:LOW) plunged 5.65% and American Eagle Outfitters (NYSE:AEO) fell 3.32%. All three results spoke to themes that have plagued the sector as were highlighted in last weeks report by Macy's Inc. (NYSE:M); underwhelming consumer spending, a continued and massive transition away from brick and mortar, labor costs and a lack of flexibility in the traditional retailing model. The resultant rotation out of traditional retail and into online has been reflected in recent price action, not mention Walmart (NYSE:WMT)'s purchase of online retailer Jet within the last several days. The SPDR S&P Retail (NYSE:XRT) slipped 1.05% on the day.
From a macro-economic point of view, yesterday's release of the July FOMC Minutes dominated the day. James Bullard called for one rate rise over the next two years while New York Fed president Dudley is telling investors that a September move on rates in not off the table. In short, the Fed is clearly looking to maintain as much optionality as possible in regards monetary policy and from where I sit, that is understandable though it does trigger some anxiety in looking forward. Divergence of views at the Fed (FOMC voting members or not) has left investors with little clarity on the flight path of rates moving forward. That lack of clarity has left equity markets in drift mode after a sharp post-Brexit rally allowing all major US equity indices to reside in positive YTD territory.
The economic data we have been receiving has been tepid and often times contradictory. For example, despite continuous gains in employment and hints of wage inflation, the CPI report for July, released on Tuesday, reflected 0.0% change in its M/M reading. On a Yr/Yr basis the CPI reading is a scant 0.8% - well below target. Housing Starts, also released on Tuesday, reflected a better than expected uptick to 1.211 M.
It is unlikely that today's data releases will so much to clarify things for investors. Weekly Jobless Claims (c. 265K) are due out at 8:30 AM EST. The Philadelphia Fed Business Outlook Survey for August (c. 2.0) is also due out at 8:30 AM EST. The widely watched Bloomberg Consumer Comfort Index for the week of Aug 14 (c. 41.8) is released at 9:45 AM EST. Three Fed Presidents should provide a range of perspectives on both the economy and the prospects for a shift in monetary policy; New York Fed's President William Dudley, San Francisco Fed President John Williams and Dallas Fed President Robert Kaplan.
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