Stocks See Support from Retailer and Trade News

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Friday closed up +0.48%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.60%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed unchanged.  

Stocks on Friday saw support from positive earnings and ratings news for retailers Gap, Ross Stores, and Footlocker.  Chip stocks received some good news after chip-equipment maker Applied Materials issued better-than-expected sales guidance.

The markets were also pleased with the news that U.S. Trade Representative Katherine Tai on Friday met with Chinese Commerce Minister Wang Wentao on the sidelines of an Asia-Pacific Economic Cooperation ministers meeting in Bangkok.  That was the first meeting between the new U.S.-Chinese trade ministers and could signal that trade relations might thaw by enough for the Biden administration to drop some of the Trump-era U.S. tariffs on $300 billion of Chinese imports.  Dropping those tariffs could reduce U.S. inflation pressures and give the Fed a little more flexibility, and also boost U.S. corporate profits by allowing lower input prices.

Stocks on Friday were undercut by a continued rise in bond yields.  The 10-year T-note yield on Friday rose by +6 bp to 3.82%, adding to Thursday’s +8 bp rise. Still, the 10-year yield is trading at a comfortable half-percentage-point below the mid-October 15-year high of 4.34%.

Boston Fed President Susan Collins added to hawkish Fed commentary Friday by saying that she hasn’t made a decision on a December rate hike and that a +75 bp rate hike remains on the table.  She said, “I do not see clear, significant evidence that the overall inflation rate is coming down at this point.”

Friday’s economic news was negative for the U.S. economy and bearish for stocks.  Oct U.S. existing home sales report fell by -5.9% to 4.43 million units, which was a negative factor for the housing market.  However, that was at least slightly better than expectations for a decline to 4.40 million.  Existing home sales have now fallen for a record nine consecutive months as high mortgage rates pummel demand.

Friday’s Oct U.S. leading economic indicators report fell by -0.8% m/m, much weaker than expectations of -0.4%.  The Sep LEI was revised lower to -0.5% from -0.4% m/m.

In another bearish factor for stocks, bitcoin fell -0.26% on Friday, which was a risk-off factor.  Bitcoin was up +0.5% early in the session but then fell back after a harsh crypto tweet from Minneapolis Fed President Neel Kashkari, who said of the FTX debacle, “This isn’t case of 1 fraudulent company in a serious industry.  Entire notion of crypto is nonsense.  Not useful 4 payments.  No inflation hedge.  No scarcity. No taxing authority.  Just a tool of speculation and greater fools.”

The Euro Stoxx 50 index Friday closed up +1.20%.  China’s Shanghai Composite Friday closed down -0.58%, and Japan’s Nikkei Stock Index closed down -0.11%. Chinese stocks continue to see downward pressure from rising Covid rates and concern that Chinese authorities will impose new restrictions.  China reported 23,132 new Covid infections on Wednesday, the most in more than 6-1/2 months.   

Today’s stock movers…

The Gap (GPS) closed up +7.55% on analyst upgrades after the company reported better-than-expected sales.

Ross Stores (ROST) rallied +9.86% after the retailer reported better-than-expected Q3 earnings and raised its guidance for its full-year earnings due to sales momentum.

Footlocker (FL) rallied +8.73% after the company reported Q3 sales that indicated solid consumer demand despite inflation pressures.

Applied Materials (AMAT) closed mildly higher by +0.24% after the chip equipment maker issued sales guidance for the current quarter that was better than expected, driven by an improvement in supply-chain disruptions.

Energy stocks showed weakness Friday, with Dec WTI crude oil futures falling -1.91%, adding to Thursday’s sharp drop of -4.62%. Exxon (XOM) fell -0.87%, Marathon Oil (MRO) fell -1.60%, and Haliburton (HAL) fell -2.03%.

DraftKings (DKNG) closed +1.01% after Piper Sandler began coverage with an overweight rating.

Tesla (TSLA) fell -1.63% as the markets continued to follow CEO Elon Musk’s diversion at Twitter and expressed concern about recent reports he hijacked Tesla software engineers to help him at Twitter.

Alibaba (BABA) fell -4.49% Friday after missing Q3 revenue estimates, although in a positive factor, the Chinese e-commerce company announced larger stock buybacks.  Other U.S.-listed Chinese stocks were on Friday’s list of the largest losers in the Nasdaq 100 index: NetEase (NTES) -5.01%, and Baidu (BIDU) -3.63%.  JD.Com (JD) fell -2.52% despite reporting better-than-expected earnings.

Across the markets…

Dec 10-year T-notes (ZNZ22) Friday closed -10.5 ticks, and the 10-year T-note yield rose +5.9 bp to 3.825%.  T-note prices were under pressure Friday from hawkish comments from Boston Fed President Susan Collins and carry-over from Thursday’s hawkish comments from St. Louis Fed President Bullard, who said he sees interest rates going above 5%.  On the bullish side for T-note prices, Friday’s U.S. home sales and LEI reports indicated weakness in the U.S. economy.  Also, the 10-year breakeven inflation expectations rate fell -3 bp to a new 5-week low of 2.27%.

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