TheChek News Flow

Closing Market Summary: Investors Cautious Ahead of Jackson Hole Speeches

Equities ticked lower in a range-bound trade on Thursday as central bankers kicked off a three-day symposium in Jackson Hole, Wyoming. The Dow (-0.1%) and the Nasdaq (-0.1%) settled roughly in line with the benchmark S&P 500, which dropped 0.2%.

Investors hesitated to move the market ahead of comments from the world's two most influential central bankers--Fed Chair Janet Yellen and European Central Bank President Mario Draghi. The two will speak on Friday at 10:00 ET and 15:00 ET, respectively.

Lingering concerns over a potential government shutdown also held sentiment in check on Thursday, but House Speaker Paul Ryan helped ease those concerns a bit, saying he is confident that the debt ceiling will be raised before it hits the limit.

Ten of the eleven sectors finished Thursday's session in negative territory, but losses were pretty modest in general. The consumer staples space (-1.3%) exhibited notable weakness, but the remaining laggards finished with losses of no more than 0.4%. The health care group (+0.3%) was the lone advancer.

Grocers like Wal-Mart (WMT 78.34, -1.62), Costco (COST 151.33, -8.04), and Kroger (KR 21.10, -1.86) weighed on the consumer staples group, dropping 2.0%, 5.0%, and 8.1%, respectively, following news that Amazon's (AMZN 952.45, -5.55) acquisition of Whole Foods Market (WFM 41.98, +0.30) will close on Monday. 

In addition, J.M. Smucker (SJM 107.51, -11.34) and Hormel Foods (HRL 32.09, -1.83) also influenced the consumer staples group lower, losing 9.5% and 5.4%, respectively, after missing both top and bottom line estimates

Elsewhere on the corporate front, retailers were a focal point following another large batch of retail earnings. The reactions were largely positive, evidenced by the SPDR S&P Retail ETF (XRT 38.84, +0.35), which moved higher by 0.9%.

Dollar Tree (DLTR 78.50, +4.18), Abercrombie & Fitch (ANF 11.25, +1.64), Guess? (GES 14.86, +2.38), Signet Jewelers (SIG 60.54, +8.65), Michaels Stores (MIK 21.27, +1.66), and Burlington Stores (BURL 86.11, +1.16)  added between 1.4% and 19.1% after all six companies beat earnings estimates.

In the bond market, U.S. Treasuries moved lower across the curve, sending the benchmark 10-yr yield two basis points higher to 2.19%. The 2-yr yield also climbed two basis points, finishing at 1.33%.

Reviewing Thursday's economic data, which included the weekly Initial Claims Report and July Existing Home Sales:

• The latest weekly initial jobless claims count totaled 234,000 while the consensus expected a reading of 237,000. Today's tally was above the unrevised prior week count of 232,000. As for continuing claims, they stayed unchanged at 1.954 million from the revised count of 1.954 million (from 1.953 million).
  • The report marked the 129th straight week initial claims have been below 300,000, which is reflective of a tight labor market.
• Existing home sales for July decreased 1.3% from June to an annualized rate of 5.44 million units while the  consensus expected a reading of 5.56 million. The prior month's reading was revised to 5.51 million from 5.52 million.
  • The key takeaway from the report is that neither the availability nor the affordability of homes is high, which is keeping sales activity from being all that it could be otherwise.

On Friday, investors will receive just one piece of economic data--July Durable Orders (consensus -6.0%). The report will cross the wires at 8:30 ET.

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Closing Market Summary: Politics Persuade Equities Modestly Lower

The equity market moved modestly lower on Wednesday amid concerns of a potential government shutdown and following a New York Times article that highlighted a rift between President Trump and Senate Majority Leader Mitch McConnell. The Nasdaq (-0.3%) and the Dow (-0.4%) settled roughly in line with the S&P 500, which dropped 0.4%. The major averages closed the session near the bottom of their relatively narrow trading ranges.

Soon after Wall Street cheered Tuesday reports suggesting that White House aids and Congressional leaders have worked together to make significant strides in framing a tax-reform proposal, the New York Times published an article that painted the relationship between Congress and the White House in a different light. Specifically, the NY Times reported that President Donald Trump and Senate Majority Leader Mitch McConnell haven't spoken to one another in weeks.

Mr. McConnell said in an interview on Wednesday afternoon that he and President Trump are "committed to advancing [their] shared agenda together and anyone who suggests otherwise is clearly not part of the conversation." The equity market did not react to the senator's remarks. 

It's also worth mentioning that, on Tuesday night, President Trump put the possibility of a government shutdown on the table if he is unable to secure funding for his promised barrier along the U.S.-Mexico border and expressed his belief that the U.S. will likely pull out of the North American Free Trade Agreement (NAFTA). Both actions would likely ruffle some feathers within the GOP.

The aforementioned headlines don't bode well for the belief that Mr. Trump will be able to work with Congress in passing the pro-growth promises of his presidential campaign. However, it's also important to not lose sight of the fact that Wednesday's slide was modest in scope and retraced only a small portion of Tuesday's rally. The S&P 500 still trades solidly higher for the week, up 0.8%.

Eight of the eleven sectors finished Wednesday's session in negative territory with the consumer discretionary (-0.8%), industrials (-0.9%), and health care (-0.7%) sectors leading the retreat. One of the consumer discretionary space's weakest components was Lowe's (LOW 73.01, -2.81), which dropped 3.7% in reaction to worse than expected earnings and disappointing earnings guidance.

Within the industrial space, transports showed notable weakness, sending the Dow Jones Transportation Average lower by 1.3%. However, on a positive note, Dow component United Technologies (UTX 117.03, +1.34) jumped 1.2% after the New York Post reported that an unidentified hedge fund has been accumulating a stake in the company and is pressuring the aerospace giant to spin off its non-core businesses.

On the flip side, the real estate (+1.0%), utilities (+0.3), and energy (+0.4%) spaces finished in the green. The energy sector benefited from a rise in the price of crude oil, which climbed 1.2% to $48.41/bbl. The commodity was trading modestly lower in the morning session, but moved sharply higher after the Energy Information Administration (EIA) reported that U.S. crude stockpiles declined by 3.3 million barrels for the week ended August 18.

In the bond market, U.S. Treasuries rallied in a curve-flattening trade on Wednesday with the 10-yr yield dropping four basis points to 2.17% and the 2-yr yield ticking one basis point lower to 1.31%. 

Reviewing Wednesday's economic data, which included July New Home Sales and the weekly MBA Mortgage Applications Index:

• New Home Sales in July hit an annualized rate of 571,000, which is below the revised June rate of 630,000 (from 610,000), and lower than the consensus of 615,000.
  • The key takeaway from the report is that new home sales growth is continuing at a frustratingly slow pace despite the tailwinds of low mortgage rates and low unemployment.
• The weekly MBA Mortgage Applications Index ticked down 0.5% to follow last week's 0.1% increase.

On Thursday, investors will receive two pieces of economic data--the weekly Initial Claims Report (consensus 237K) and July Existing Home Sales (consensus 5.56 million). The two reports will be released at 8:30 ET and 10:00 ET, respectively.

• Nasdaq Composite +16.6% YTD
• Dow Jones Industrial Average +10.4% YTD
• S&P 500 +9.2% YTD
• Russell 2000 +0.9% YTD