Before The Bell - It has been a wild ride for equity investors the last few sessions, with notable selling on Tuesday followed by a big rally yesterday. With a light calendar of earnings right now, investors have looked to the business beat for direction, but unfortunately the economic data until today have been mixed at best. This uneven economic performance, along with concerns about the coronavirus Delta variant and worries about inflation, despite a softer-than-expected reading on consumer prices for August on Tuesday, had created some uncertainty on Wall Street and the subsequent recent stretch of unpredictable trading sessions.
This morning, the economy is once again on the minds of investors, with the spotlight on retail sales data for the month of August. The report was much stronger than expected, with retail sales up 0.7%, versus the expectation calling for a decline of 0.7%. The figure, excluding auto and gas, was up a very strong 2.0%. Likewise, the Philly Fed’s business outlook came in at 30.7, much higher than consensus forecast of 19.0. Meantime, initial weekly jobless claims came in at 332,000, an increase of 22,000 from the previous week figure. On the positive side, continuing claims fell to a pandemic-era low. The positive data from the business beat does suggest that worries about the Delta variant may have been a bit overblown recently. These reports are likely to be closely monitored by the Federal Reserve ahead of the commencement of its two-day FOMC meeting next Tuesday, in which it will discuss when may be the appropriate time for the central bank to begin its bond-buying tapering.
The equity futures, which were lower heading into the economic releases, turned a bit positive on the data and are indicating that the Dow Jones Industrial Average will build off of yesterday’s rally of 237 points. Likewise, the yield on the 10-year Treasury note after falling to the 1.27% vicinity earlier this week on Delta variant concerns, and the mixed economic data, is moving higher this morning (at 1.34%) on the positive economic figures. This may prompt some movement into the economically sensitive sectors during today’s trading session. The retailing sector and the consumer discretionary names, which have been trading mostly sideways of late, also may be of interest. Conversely, the rise in bond yields may weigh on some of the higher-growth names, and not surprisingly the NASDAQ futures are still in the red after the economic data.
One area that has been under a significant amount of selling pressure this week has been the gaming sector. Wall Street was unnerved by reports that China’s government launched a 45-day investigation of the major casinos in Macau. This process may bring a series of regulations for casino operators in the Asian gaming market, which includes many of the U.S.-based companies. The stocks of Wynn Resorts (WYNN) and Las Vegas Sands (LVS) have led a group of casino and resort stocks lower since the news of increased regulatory scrutiny by the government in Beijing. – William G. Ferguson