Weekly Report

On the Radar this Week: Retailers and Black Gold

The S&P 500 and the NASDAQ closed an especially quiet week, almost devoid of volatility. The ultra-low volatility over the last few weeks has sent the VIX index falling especially low – the fear gauge now slightly above the 10 point level. The NASDAQ closed at a new historic high, the S&P 500 rising 0.6% to the 2,399 point level, even on the background of a sharp plunge in “black gold.” The NASDAQ tacked on 0.9%, closing at the 6,100 point level, the Dow Jones ending up 0.3% at the 21,006 point level.

Until now, stocks have not taken a hit from the recent declines in crude, but the marked volatility in crude is still likely to have a significant impact on the coming trading week. This week is expected to be dominated by Q1 earnings reports, retailers at their helm, along with incoming economic figures from China and the U.S.

But first and foremost, Sunday’s elections in France will be taking center-stage, effectually setting the tone for global markets. Emmanuel Macron easily defeated far-right Marie Le Pen, a pall of uncertainty now removed, meaning a positive trigger for the continental bloc currency along with its stocks, which are already in the midst of a strong rally. Were Le Pen to have won it would have been a bombshell, analysts expecting players to flee to safer shores, with a selloff in riskier assets.

On Friday, the April employment was released, coming out significantly stronger than expected, the unemployment rate falling to 4.4% and neutralizing concerns that the weakness in Q1 economic figures had spilled over into the second quarter. Cumulatively, 211 thousand positions were added in April, offsetting March’s weak 79 thousand new hires. Economists expect the job market to continue to gain steam.

The economic figures, though, will continue to be important, all the more so seeing that markets are prepping themselves for a rate hike next month after the Fed’s latest policy announcement chalked up weak Q1 growth as a passing and one-time occurrence. Retail chain sales figures will be released on Friday, along with the Consumer Price Index.

Retail stocks will command most of the attention this week. Now, were we to take a brief glance at the S&P 500 retail sector index, things would look rosy, business seeing to be in top shape; after all, the retail index – valued at $1.16 trillion – has climbed 13% year to date to a new historic high, almost doubling the gains of 7% on the S&P 500.

With that said, it’s the new retailers that are almost entirely responsible for the index’s stellar yields, Amazon (AMZN), Netflix (NFLX) and Priceline (PCLN), now summatively accounting for over half of the sector’s value. Furthermore, the performance of these 3 new retailers almost entirely camouflages a sharp and broad decline on the part of old-guard retailers which have been undermined mostly by Amazon.

In effect, when discounting for these 3 strongest performing retail stocks, the sector’s performance is far from glowing, with gains of only 1.3% this year and now trading off a whopping 8% from the historic high recorded 2-years ago.

This week will give us a fresh look at the old-guard, brick and mortar retailers, and how they’ve fared in the face of inclement weather and the new click and order culture. Over the course of the week, we’ll get the Q1 earnings numbers of retailers like Macy’s (M), Kohl’s (KSS), Nordstrom (JWN) and J.C. Penney (JCP). All of these firms can shed light on whether some chains’ aggressive turn-around campaigns, which have meant at time layoffs in the thousands, are beginning to yield fruit.

All-in-all, Q1 earnings reports until now have been rather impressive, S&P 500 earnings growth expected to pan out to a year-over-year rate of 14.7%, in other words, the best-performing quarter since 2011.

Back to crude again, which came toppling down, breaking through a number of support levels! Crude traded stably on Friday, despite shouldering 6.3% losses on the week, the price per barrel falling to $46.22. OPEC, along with non-member countries, are expected to extend the production cuts, shaving production further to 1.8 million barrels per day. OPEC will be holding a meeting on May 25th, the market expected to trade in jittery fashion leading up to it, especially seeing that American firms have ramped up production and filled the void left by scaled-back production in OPEC, and Libya, which has since resumed production.

Have a great trading week!