Trump's Address To Nation Appears To Keep Markets in Neutral

There was a whole lot of nothing going on at the open today as markets, again, appear to be searching for direction that President Trump might be able to offer up tonight.

In a special joint session of Congress, Trump is expected to roll out more information on his plans for tax cuts, health-care reform, deregulation, a tax holiday for offshore cash repatriation and the border-adjustment tax. Some analysts have said they expect his remarks might offer more clarity on a number of proposals that appear to have juiced the market since the election. Or not.

Ahead of that during yesterday’s similarly lackluster trading, the CBOE Volatility Index (VIX) climbed 5.4% to close at 12.09. That’s the highest close that Wall Street’s fear gauge has notched since December. Both the Dow Jones Industrials (DJX) and the S&P 500 (SPX) managed to eke out small gains that put their closes in record territory for the 12th straight day.

Up, too, today are a handful of economic reports that might budge the markets, including a fresh read on the gross domestic product (GDP) as well as the release of the Chicago Purchasing Manager’s Index (PMI), a measure of economic health in manufacturing.

The Commerce Department’s revised its estimate of fourth-quarter growth rate, but it didn’t move at all, according to this morning’s report. Some economists had expected the government would push gross domestic product (GDP) gains to the upside at 2.1% from an initial 1.9% reading. That didn’t happen after an uptick in consumer spending appeared to be offset by slight dips in business investment, housing investment and government spending, according to the report. The trade deficit ballooned to 69.2, the highest reading since March of 2015.

Keep an eye on retail stocks after Target Corporation TGT reported disappointing earnings ahead of the bell that is pulling down its shares and might drag others down too. TGT shares were falling 14% at the open, heading toward its biggest one-day price drop since it went public in 1972, after the discounter missed Wall Street’s forecast. TGT blamed the “rapidly changing consumer behavior, which drove very strong digital growth but unexpected softness in our stores," according to Chief Executive Brian Cornell. That seemed to match the sentiments from a number of the nation’s largest retailers that have also reported results short of Wall Street’s expectations. (See below.)

It might also be interesting to see how another consumer favorite, restaurants, and their stocks fare after strong results out of Domino's Pizza, Inc. DPZ this morning. If consumers are changing their bricks-and-mortar shopping habits, they don’t seem to be slowing down their pizza-eating habits if DPZ’s sales are any indication. Those shares were headed toward a record high open after the chain reported better-than-expected results, noting that pizza sales were higher and there were a number of new stores. 

A Low Amongst All These Highs

That would be in pending home sales, which dropped to its lowest level in a year in January—an apparent surprise to some housing analysts and investors. The National Association of Realtors (NAR) said yesterday that house hunters inked 2.8% fewer contracts to purchase existing homes last month when compared to December’s results.

Sales in the Midwest, typically the most affordable region, fell 5% and were 3.8% off the year-ago results. The biggest pullback was in the typically pricey West where sales dropped 9.8% last month and were off 0.4% from last year’s results.

Why did this happen? "The significant shortage of listings last month along with deteriorating affordability as the result of higher home prices and mortgage rates kept many would-be buyers at bay," Lawrence Yun, chief economist of the NAR, said in a press release.

Some analysts suggested that the problems lie in what inventory is available for the homebuyers out there—and that’s entry level with tight supply. Some homebuilders might counter that by noting that higher land prices forces them to focus on the move-up and higher end buyers. We’ll watch to see how that unfolds in coming months.

Durable Goods Slump

It turns out that business investment didn’t kick off the year nearly as well as expected, according to the Commerce Department. Thanks apparently mostly to spikes in orders for commercial jets and military planes, durable-goods orders rose 1.8% in January, Commerce said Monday. But strip the 70% gain in bookings of jets and 60% advance for military goods, typically volatile orders, and durable-goods orders fell slightly by 0.2% last month. That marked the first fallback in orders, minus transportation, in six months. Orders dropped for computers, networking gear, electrical equipment and primary metals used to make a variety of heavy-duty goods for businesses and consumers, Commerce said.

But not all analysts are concerned. Wells Fargo, for example, is one. “Given the firming we have seen in survey data… we think this stall for orders in January is likely temporary, and we expect orders and manufacturing activity broadly to continue to firm in 2017.” 

More Bad News for Retailers

The retail industry has long looked to comparable-store sales, typically on a basis of stores open longer than a year, as a metric of growth. For many years, many of the largest retailers in the U.S. reported that measure on a monthly basis. Fewer do these days, but of those that release numbers on the first Thursday of the month—that’s March 2—they’re looking at considerably lower results today than they were even a week ago, reports Retail Metrics, an industry research firm.

On Monday, President Ken Perkins said sluggish traffic trends and delayed tax refunds appear to be leading to a 120 basis-point shave off same-store sales expectations. “Fourth-quarter earnings period has thrown some serious cold water on February sales expectations,” he said. As a result, the Wall Street forecast now sits at a gain of 1.9% on an “easy” 0.1% year-over-year comparison, he said. The “big revision” from a week ago brings it down from what many analysts might consider a healthy 3.1% gain. While a number of major retailers “exceeded generally lower earnings expectations last week, most of the guidance provided…was negative in nature,” he said.