Closing Stock Market SummaryThe S&P 500 lost 0.5% on Monday, pressured by analyst downgrades and waning hopes for a 50-basis points rate cut at the end of the month. With the major indices near record highs, investors adopted a cautious mindset in front of speeches from several Fed officials this week.
The Dow Jones Industrial Average lost 0.4%, the Nasdaq Composite lost 0.8%, and the Russell 2000 lost 0.9%.
With more market participants presumably back from the holiday break, the market had a more comprehensive day to digest the better-than-expected June employment report that was released on Friday. Unlike Friday, though, where stocks rallied from session lows despite the subdued rate-cut expectations, Monday's session exhibited a lack of buying conviction.
Contributing to this lack of conviction were a slew of negative-minded analyst recommendations, which featured Apple (AAPL 200.02, -4.21, -2.1%) being downgraded to Sell from Neutral at Rosenblatt. Morgan Stanley, meanwhile, downgraded global equities to Underweight from Equal-Weight, citing a poor outlook for equities over the next three months.
Weakness in Apple contributed to the underperformance in the S&P 500 information technology sector (-0.7%). Losses from the materials (-1.1%), communication services (-0.9%), health care (-0.8%), industrials (-0.7%), and financials (-0.6%) sectors also hindered the broader market.
Selling was kept in check though, with the real estate sector (+0.4%) providing offsetting support, as the market was able to stay above Friday's session lows.
The market also appeared willing to wait to hear from several Fed officials throughout the week. Fed Chair Powell will speak three times this week, but most attention will likely be centered on his semi-annual monetary policy testimony on Capitol Hill on Wednesday and Thursday.
In other corporate news, shares of Boeing (BA 351.12, -4.74, -1.3%) underperformed the broader market amid news that a Saudi airline opted out of $5.9 billion 737 Max order in favor of Airbus.
U.S. Treasuries finished little changed in a quiet session. The 2-yr yield increased one basis point to 1.89%, and the 10-yr yield declined one basis point to 2.03%. The U.S. Dollar Index increased 0.1% to 97.41. WTI crude increased 0.2% to $57.40/bbl.
Reviewing Monday's lone economic data, the Consumer Credit report for May:
- Consumer credit increased by $17.1 billion in May (consensus $17.7 billion) on the heels of an unrevised $17.5 billion in April.
- The key takeaway from the report is that the increase was driven by growth in both nonrevolving and revolving credit.
Looking ahead, investors will receive the NFIB Small Business Optimism Index for June and the JOLTS - Job Opening report for May on Tuesday.
- Nasdaq Composite +22.1% YTD
- S&P 500 +18.7% YTD
- Russell 2000 +15.8% YTD
- Dow Jones Industrial Average +14.9% YTD
Billionaire Jeffrey Epstein Indicted on Federal Sex-Trafficking Charges
Accusations relate to alleged activities at Epstein’s Manhattan townhouse and his Palm Beach estate between 2002 and 2005
Jeffrey Epstein, a billionaire financier long dogged by allegations of sexual abuse involving underage girls, has been indicted on federal sex-trafficking charges.
Mr. Epstein was arrested Saturday and is due to appear in court Monday; the indictment was unsealed Monday morning. A lawyer for Mr. Epstein couldn’t immediately be reached for comment.
Federal prosecutors in Manhattan allege Mr. Epstein ran an operation that allowed him to sexually exploit dozens of underage girls—some as young as 14 years old—sometimes paying them in cash for sex acts, according to the indictment.
Prosecutors allege Mr. Epstein used employees and some of his victims to recruit other young women and girls into his network.
The 14-page indictment details how Mr. Epstein allegedly set up massage tables at his homes, arranging encounters with the girls that steadily progressed to masturbation and sex.
Apple: Rosenblatt analyst who downgraded to Sell on CNBC
Rosenblatt downgraded to Sell from Neutral, maintained $150 tgt.
Does not see fundamental improvement despite recent recovery in the stock; sees increasing competition, fundamental deterioration over 6-12 months.
Sees people switching from iOS to android in China in recent months. Wants to see new design next year to maintain market share. Expects iPhones down 10% in 2H19; iPhone, gross margin won't improve with next model.
AAPL -1.4% weighing on Dow (-0.4%) and Nasdaq 100 (-0.5%) futures
Could Uniqlo's Digital Transformation Help Solve Retail's Inventory Problem?
This week everyone will be talking about Uniqlo's digital ambitions, Dapper Dan's memoir and Fenty Beauty's plans for China. Read our BoF Professional Cheat Sheet.
Fast Retailing's Digital Ambitions
Uniqlo store in Osaka, Japan | Source: Shutterstock
- Uniqlo owner Fast Retailing reports quarterly results on July 11
- The company has embraced automation and data to overcome inventory and logistics challenges
- Fast Retailing lowered its full-year outlook in April, blaming inventory problems caused by warm winter weather at Uniqlo, which drives over 80 percent of sales
Uniqlo could make a plausible case that it’s a victim of climate change. The Japanese retail giant dialled back its full-year outlook in April after an unexpectedly warm winter saddled the company with ¥44.8 billion ($400 million) of unsold sweaters, Heattech garments, puffy coats and other apparel. We'll find out with fresh results this week whether this was a temporary stumble or a sign of larger problems. Fast Retailing is in the middle of an ambitious plan to fully integrate its digital and brick-and-mortar operations, which span thousands of stores in about 20 countries. The company is squeezing efficiencies out of its supply chain, automating more warehouse functions and redesigning stores to handle online orders and cater to local tastes. It’s also beefing up its customer data analytics so next time customers shed their winter coats early, Fast Retailing won't be caught by surprise.
The Bottom Line: Uniqlo's ability to quickly incorporate new technologies and retail trends has helped it avoid the inventory problems of H&M or declining sales of Gap.
Dapper Dan Tells His Story
Dapper Dan in Gucci's Autumn/Winter 2017 menswear tailoring campaign | Source: Courtesy
- Harlem-based designer Daniel Day releases "Dapper Dan: A Life," on July 9
- Day helped define the codes of modern streetwear in the 1980s, including the use of bootleg luxury logos
- At the time, brands threatened legal action; now he's partnered with Gucci
In the 1980s, Dapper Dan popularised the idea that knockoff (or, as they became known, knock-up) Fendi and Louis Vuitton logos could be stylish too, setting in motion trends that have come to define both streetwear and luxury fashion. His tailor shop on 125th Street in Harlem closed in 1992, and it took another 25 years before the luxury industry embraced him, when Gucci helped reopen his atelier and collaborate on a collection (though even these gestures came only in the wake of accusations the brand ripped off Day's work). In the interim, luxury embraced streetwear, especially the logos. And the industry has faced increasing pressure to acknowledge its cultural debts, rather than simply appropriating underground art for financial gain. Day's memoir will cover seven decades, from his experience growing up in Harlem in the 1940s and 1950s to his work with hip-hop legends and athletes in the 1980s to his partnership with Gucci.
The Bottom Line: Day's memoir is no mere history lesson. As one of the most influential black voices at Gucci - and therefore the fashion industry as a whole - he has played a pivotal role in guiding the brand's approach toward other cultures and taking it to task when it fails.
Is Fenty Beauty Preparing to Enter Mainland China?
Fenty Beauty | Source: Fenty Beauty
- Fenty Beauty registered a Weibo account last month, sparking speculation Rihanna's brand is preparing to enter mainland China
- China is the only major market where Fenty isn't fully available; Chinese consumers must travel to Hong Kong or beyond to acquire its complete range of products
- China requires animal testing on cosmetics, which Fenty has said it will not do
Fenty Beauty managed to surpass €500 million in annual sales without entering the world's second-biggest cosmetics market. That may be about to change. The LVMH-backed, Rihanna-fronted beauty line recently opened an account on the social media app Weibo, a necessary step for any Western brand looking to sell directly to Chinese consumers. Though it has yet to post, the account follows Xiaohongshu, an e-commerce site. But though Fenty took the US and Europe by storm, success in China is by no means assured, BoF's Aijing Wang reports. For starters, Fenty has made a splash with its 40 shades of foundation; diversity doesn't sell as well in China, which is relatively homogenous compared with the US. Regulations mandating animal testing for cosmetics are another roadblock for cruelty-free Fenty, though China appears to be slowly loosening these requirements.
The Bottom Line: Fenty will have plenty of competition in China's red-hot beauty market, where Western brands like Estée Lauder, L'Oréal and Chanel (which added Tmall to its Chinese distribution channels earlier this month) are well-established.
COMMENT OF THE WEEK
Source: H&M
"The moment you lose sight of what the customer wants you lose big time."