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After The Close - The stock market finished the week on a generally softer note. At the end of the day, the Dow Jones Industrial Average was down 23 points; the broader S&P 500 Index was off nearly four points; but the NASDAQ, which managed to buck the downtrend, ended the session higher by five points. Market breadth showed a weaker tone, as declining issues outnumbered advancers on the NYSE. From a sector perspective, the consumer, financial, and basic materials issues retreated, while the healthcare, telecom, and utility stocks managed to make some progress.

Traders received a few notable economic reports this morning. Of note, the Consumer Price Index increased 0.2% during the month of April, which was in line with the consensus forecast. In addition, business inventories rose 0.2% in the month of March, which slightly exceeded expectations. Further, the University of Michigan’s consumer sentiment survey delivered a preliminary reading of 97.7 for the month of May, which was also an encouraging number. However, on a less positive note, retail sales rose just 0.4% in April, while analysts had been looking for a better showing.

Meanwhile, in the corporate arena, a few more retailers posted their numbers over the past 24 hours. Specifically, shares of Nordstrom (JWN) sank on investor concerns about the top line. In addition, things did not go well for J.C. Penney (JCP). That issue retreated in response to a weaker-than-anticipated release. Many on Wall Street are likely growing concerned about the weakness developing in the broader retail sector, as we have received quite a few discouraging reports from some widely watched companies lately.  

Technically, equities seem to be running into some resistance, as they attempt to move further into high ground. Today’s softness keeps the S&P 500 Index just below the 2,400 mark. However, we shall see what the week ahead holds on both the corporate and political fronts. - Adam Rosner

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.

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12:20 PM EDT - Though not as severe as yesterday’s open, most U.S. equities began Friday in the red. Earnings-related weakness in the retail sector, economic updates from the Federal Reserve and on the business beat, and what has been perceived by many to be an elevated level of political risk have all factored into the late-week pullback. The worry among investors is that recent developments in Washington will distract or delay the implementation of the Trump Administration’s lynchpin tax and regulation reform policies. The prospect of these overhaul measures has been the primary forces driving the market averages to all-time highs since November. So, any meaningful alteration in priorities may offset some of the gains down the road.

Accordingly, the market sectors that have benefitted the most in anticipation of the President’s economic policies are in the red today. Industrials and basic materials are among the biggest laggards, while weakness in the financial sector has also held back better performance for the Dow. Utility stocks, in tandem with a modest week-long uptick in U.S. crude prices, are also helping to negate the selling in other areas.

Overall, first-quarter earnings season has been positive. Roughly three-quarters of the S&P 500’s components outperformed on the bottom line. But as the final wave of company reports were released, one area – retail – has been a notable disappointment. Macy’s (M), Kohl’s (KSS), and J. C. Penney (JCP) have traded considerably lower this morning, with the latter shedding as much as 10% at one point in the session. Also of note, traders were given mixed-to-solid consumer data from the Commerce Department this morning. While consumer prices rose in line with estimates in April, retail sales growth lagged consensus expectations. Consumer sentiment hit 97.7, setting a four-month high.

As the morning progressed, the bulls managed to pare some of the losses in the major indexes, though breadth remained firmly negative. Still, only the NASDAQ managed to reemerge and cross into positive territory by the noon hour. That index will likely be the only one to achieve a five-day gain. Next week, trading focus is expected to pivot from earnings to the economy. The Fed next meets to discuss its interest rate policy in June, during which many believe a hike will be enacted. While further developments from the Capitol may inspire additional bouts of bearish trading, the bull market remains intact. - Robert Harrington

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.


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Before The Bell - Blame it on the retail sector. On point, following three largely uninspiring, but benign, sessions to start this week, when all that Wall Street had to deal with were earnings, the economy, and the political situation, investors entered the penultimate trading session of the week with high hopes that an overvalued equity market would continue to hold its own. But what Wall Street failed to take into account was a small subsection of Corporate America--the retailing space--which had its own idea about the latest developments. And here, the news was not good, and all of Wall Street suffered--at least initially.

Specifically, giant department store chain Macy's (M) posted a notable shortfall on the bottom line for the latest quarter, with share net, adjusted for unusual items, falling short of the consensus forecast by about a third. Macy's also had a shortfall on the revenue line. And the stock fell sharply during the session, as a result, falling by some 16% in late dealings. A disappointing performance also affected retailer Dillard's Inc. (DDS). That stock tumbled as well, falling by more than 17% in mid-afternoon. So, stocks wilted, especially in the early going.

To wit, the Dow Jones Industrial Average fell by more than 140 points in the first half hour of trading, while the NASDAQ tumbled more than 50 points at the outset. Worse, the S&P Mid-Cap 400 and the small-cap Russell 2000 plunged by more than a percentage point each in the early going, while all 10 of the leading equity groups declined, as did about three times as many stocks as rose on the Big Board. It clearly was an early rout of the bulls. But this initial pounding proved to be the low point of the session, and as the afternoon commenced, so did a comeback by the bulls.

What chagrined the bulls is that the pullback in retail sparked concerns about consumer spending. It is the consumer, who accounts for some two-thirds of aggregate business output--or GDP--who will be needed in the current quarter if forecasts that the economy will grow by some 3% is to be realized. The economy is consumer driven, pure and simple. Macy's stock, meantime, has been under pressure so far this year, as have other retailers, including Dillard's, which likewise hit a 52-week low yesterday. The weakness in the retail group, in part, reflected consumer preferences for the Internet, where many purchases now are made.

As the day progressed, the rebound in the market continued, although the averages remained below the breakeven line throughout the session. Still, given the weak showing in the consumer groups, which also took in The Home Depot (HD - Free Home Depot Stock Report). That stock's softness, it fell in sympathy with the rest of the group, contributed to the Dow's weakness. As to other influences, producer prices rose more than expected in April, according to data issued yesterday morning. But that disappointment was balanced out by a better showing in jobless claims in the latest week. They fell below expectations.

Then, as we headed into the final stretch, the market's comeback stalled to a degree, but stocks did not retrace their mid-session recovery to any degree. So, at the close, the Dow was off by 24 points; the S&P 500 Index was down five points; and the NASDAQ was lower by 13 points. Losses of about two-thirds of a percentage point were suffered by the small- and mid-cap indexes, while the final tally showed losses in eight of the 10 leading sectors, with the consumer cyclical group, the financials, and the telecoms among the weaker categories. Also losing stocks beat out winning issues on the NYSE. It was a poor showing, overall.  

Now, the week concludes, and a look overseas shows that stocks in Asia were mixed overnight on concerns about the meltdown in U.S. retail equities yesterday, while in Europe, the key bourses are trending higher at the moment. Also, oil is flat; Treasury yields are lower; and U.S. futures are showing early softness following news of a lesser increase in U.S. retail sales in April than forecast. So, barring some major news on the earnings front, such as we saw yesterday in retail, a mixed-to-lower stock market over the first four days of this week should conclude matters with some possible further sloppiness. 

Finally, in data just issued, the government reported that U.S. retail sales had advanced by 0.4% in April; an increase of 0.6% had been the consensus forecast. In all, Americans stepped up their spending at auto dealers, hardware stores, and over the Internet last month. This modest increase followed sluggish performances in February and March. On point, sales had ticked up just slightly in March and fell in February. A late Easter this year no doubt helped the April gain, which still was underwhelming. This data came after the release of the weak reports yesterday at Macy's and Dillard's and a disappointing showing today J.C. Penney (JCP).

In other data just released, the Consumer Price Index edged up 0.2% last month. That increase was right on target and should not alarm the Federal Reserve, which has been looking for some signs that pricing was firming.   - Harvey S. Katz

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.