Weak retail sales drive stock market to minor losses

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Commenting on today’s trading with a focus on weak retail sales, Gorilla Trades strategist Ken Berman said:

While the large-cap benchmarks finished lower today, we finally saw strength ‘under-the-hood’ in the face of the mixed headlines, which bodes well for the rest of week. In a weak market, today’s session could have ended with severe losses, given the weak retail sales report and the uncertainty regarding the ‘phase one’ deal with China, but investors focused on the positives and global risk assets also remained stable, confirming the bullish underlying trend.

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The major indices all finished with small losses following yesterday’s healthy rally, as traders weighed the weak retail sales number and the promising quarterly earnings reports. The Dow was down 23, or 0.1%, to 27,002, the Nasdaq gained 25, or 0.3%, to 8,124, while the S&P 500 fell by 6, or 0.2%, to 2,990. Advancing issues outnumbered decliners by a 5-to-4 ratio on the NYSE, where volume was slightly below average.

Tech in focus

Apart from tech stocks and materials, the key sectors were flat, at worst, and services, consumer goods, and utilities closed the day in the red. On a positive note, financials defied the dip in Treasury yields thanks to the better-than-expected quarterly report of Bank of America (BAC), which sent the stock to a new ten-week high. The fact that the highly-anticipated draft Brexit deal wasn’t released today weighed on risk assets, but according to the latest rumors, the European Union (EU) and the U.K. are close to a final agreement.

IBM (IBM) and Netflix (NFLX) reported earnings after the closing bell, and a very active Thursday is all but assured for the tech sector, as both companies posted surprising numbers. IBM missed on revenues while Netflix beat estimates across the board, and accordingly, the shares of the streaming giant surged higher in after-hours trading. Additionally, IBM pulled back in the wake of its report, and while the struggling software maker bounced back this year, it seems that it continues to struggle due to its shrinking market share in some of its core businesses.

Weak retail sales just some data in heavy macro news week

The earnings season will continue with key reports from several sectors, but financials will still likely make the biggest waves. Morgan Stanley (MS), BBT Corp. (BBT), and SunTrust (STI) might continue the string of positive reports from the sector, while the numbers of Philip Morris (PM) and Honeywell (HON) will also be closely watched. The tobacco giant had a very hectic quarter, due to the merger talks with Altria (MO). While the stock recovered from its August plunge, its investors could use another positive surprise, since its trading well below its all-time high from 2017.

We will have another busy day of economic releases, with the manufacturing and housing sectors being in focus tomorrow. The Philly Fed Index will likely have the biggest impact on stocks and bonds, especially in light of the very weak ISM manufacturing PMI. Industrial production will also be out before the bell, and analysts expect a slight drop in output despite last month’s very strong reading. The consensus calls for a drop in the number of housing starts and building permits as well, but today’s much better-than-expected NAHB Housing Market Index points to surprisingly strong activity in the sector. Stay tuned!