Unexpected higher retail sales and jobless claims add to volatility
Key points to remember:
- SPX 50-day moving average could be a key support level to watch
- Cboe volatility index (VIX) expected to rebound
- Retail sales and jobless claims data exceeded expectations
Retail sales in the United States unexpectedly rose in August, up 0.7%. Economists expected a 0.7% drop, as the Delta variant was to keep people away from brick-and-mortar establishments like restaurants. They also highlighted persistent supply chain problems leading to product shortages.
Retail sales include spending on meals, cars, clothing and computers. Together, they represent a huge share of consumer spending and economic demand in the United States. If, or some believe when, the Delta variant hits its peak, economists expect retail sales to pick up just in time for the holiday shopping season, when some consumers will be armed. with savings and pent-up demand. But that rosy scenario comes with a few caveats, like increased vaccination rates, easier product shortages, and avoidance of another major and contagious variant of Covid-19.
The jobless claims also created a little surprise this morning. Initial jobless claims stood at 332,000 against 322,000 expected for the week ending September 11. The low number in the pandemic era sows optimism that the US labor market is experiencing sustained improvement.
In Asia, stocks ended up mostly lower, driven by a massive sell-off in Chinese real estate stocks. The sector is now in the crosshairs of the government, which has said it wants to slow down the real estate sector. Some weak economic indicators have also raised the question of whether Asian economies are as strong as expected. Consumer spending in China rose 2.5%, well below the expected 7% increase. In addition, industrial production growth was slightly lower than expected, up 5.3% in August against a forecast of 5.8% growth.
50 days again to the rescue
After nearly two weeks of scrambling, the S&P 500 Index (SPX) found help Wednesday with its old friend the 50-day moving average.
For months now, well, really, all year this 50-day MA has been like a springboard for the clue. Every time he landed or approached it, he was catapulted higher. We don’t know if that’s the case this time around, but at least on Wednesday, one of the best days in a while, it looked like the lucky 50’s club were in it again.
At the start of Wednesday’s session, that moving average was around 4430. The SPX hit a low of 4435 on Tuesday, then of 4438 early Wednesday. Both times, tech support seemed to hold up. From a sentiment standpoint, this could be a positive sign anyway. Keep in mind that the SPX has fallen below the 50 day MA on several occasions this year, but never stayed below more than a few days before starting a new rally. If this period turns out to be different and we see increased selling pressure, it could suggest that the market may start to execute a more serious decline.
Many analysts (including some of Wall Street’s biggest investment banks) recently wrote that the market is behind for a 5% pullback or even a 10% correction. For them to be right, those 50 days will have to give way, so keep an eye out for them in future sessions.
September’s stupor strikes again
Aside from the excitement of this line on the charts (the 50 day MA), it was a bit difficult to find anything moving the market on Wednesday. As the old song goes, things had been down for so long that the bottom started to lift. A short cover before the Quadruple Witches Day tomorrow (see more below) might help explain the bounce, as well as the technical factor discussed above.
A Fed meeting next week looks unlikely to change the status quo, and while a handful of companies are offering results, the market is roughly in a lull ahead of the start of the third quarter reporting season. next month. September is often a lackluster trading month with market pressure, at least historically.
The Cboe volatility index (VIX), struggled to exceed its long-term average near 20, but topped it earlier this week before falling back below 19 on Wednesday night. Unless the system shakes, we could see the index continue to drift between 16 and 20. The overall market could continue to move back and forth until next week, when we get a clearer picture of what to think. the Fed in terms of the timing of a pullback from its current stimulus efforts.
It might be worth keeping an eye on gold and the US dollar. Gold had a difficult morning falling 1.5% as the US dollar begins to strengthen. These two elements could serve as indicators of economic activity.
Friday meeting with a witch: This only happens four times a year, and Friday is one of them. Stay tuned for the ‘Quadruple Witch’ simultaneous expiration of individual stock options, stock index options, stock index futures, and single stock futures. Traditionally, trading is often more choppy than normal before these days, with higher trading volume as well. Some analysts recently told the media that they noticed the market tended to be weaker as the days of witchcraft approached the last few times they happened, and of course we are in the midst of some struggles of market that basically lasted every month. The counter-argument is that witchcraft doesn’t have the same impact it once did due to the popularity of the weekly options.
Even so, witchcraft can still make exchanges hectic, as so much is happening at once and companies are unwinding their positions against each other and against their actions. The fact that the Fed meets next week could add to the turmoil this time around, but, as noted above, the consensus on Wall Street appears to be turning to a greater likelihood of an announcement to cut the stimulus by the Fed later this year, not next week.
Shop in a shop in a shop in a shop. It’s not a new twist for a cat in the hat, but the familiar idea of having a stand-alone store within a larger brick-and-mortar store seems to be making a comeback. Ulta Beauty (ULTA) recently announced the opening of small format stores in 100 Target (TGT) locations across the country. Sephora has installed its shingle at Kohl’s (KSS), Disney (DIS) is tripling its stores at Target, and other Toys R Us stores are in Macy’s (M).
The pandemic has accelerated the shop-in-shop trend. With consumers wanting to get the most out of their in-person purchases, one-stop shopping with access to multiple brands is seemingly becoming attractive. There are also marketing and revenue sharing agreements to be made between stores to access a larger customer base with contracts that include provisions to avoid cannibalization. This begs the question of where all of this leaves the besieged commercial real estate sector, already beaten by Amazon (AMZN) – induced online shopping trends and COVID-19 concerns that have driven buyers even further away physical shopping centers. Of course, Target and Kohl’s often anchor malls, but does that mean potential synergies or competition for other stores in those malls.
Crude continues to climb: Crude Oil Futures (/ CL) broke above $ 72 a barrel, a level we haven’t seen since July. This is after a drop in crude supplies for six straight weeks, according to a report from Barron. It is not uncommon to see this scenario unfold during hurricane season. We’ve seen our share of hurricanes this year and we’ll likely see more to come. Hurricane Ida caused the closure of oil refineries in the Gulf of Mexico. Also, let’s not forget the concerns of the Delta variant, another factor that could impact crude oil prices. Rising crude prices helped energy stocks such as Occidental Petroleum (OXY), Marathon Oil (MRO), ConocoPhillips (COP) and Schlumberger (SLB), which saw their prices rise at least 4% yesterday.
Reduced supply and hurricanes may not be the only factors affecting oil prices. A slowdown in Chinese growth may also have contributed to the surge in crude oil prices. Remember, China is a major consumer of crude oil. It will be interesting to see if the momentum in crude oil continues as fall approaches.
TD Ameritrade® commentary for educational purposes only. SIPC member.