Market Drivers: Fed Uncertainty and Faltering Retail Sales

Goats butting heads.

Goats butting heads. (Photo credit: Wikipedia)

While the 3 hour halt in Nasdaq listed stocks gained significant attention today there were other drivers in the market this week that are worth noting like FOMC minutes (part of the never-ending discussion of when will the Fed begin tapering), earnings from retailers and the health of the housing market.

FOMC Minutes Whip Saw Effect

The market hypothesized that light trading volume early in the week was the result of market participants waiting for the FOMC meeting release. The release on Wednesday did not provide the desired clarity traders had been hoping over the timing of tapering. Add to that mixed economic data and a selloff in the market followed while few took reassurance that Fed tapering does not mean tightening. Once the dust settled the market rallied into positive territory on the idea that the minutes did not indicate September tapering was a done deal. What the report highlighted was concern over persistently low inflation, the need to watch the increasing higher mortgage rates on housing,  and significant tightening of financial markets. Sentiment that was not unfamiliar to the market participants that have been following guidance provided by companies in their earnings releases. However, the market sold off again as bond yields began to rise the 10-year Treasury. The 10-year hit a new 2-year high on Monday of 2.875% and was at 2.9% on Thursday’s close.

To Shop or Not to Shop - Retailers Report Earnings

As retailers continued to report earnings this week the ongoing theme was weak traffic with misses on fashion and goods. While retailers provided a heavy promotional environment to garner attention analysts noted consumers were focused is on bigger ticket items. Big names reporting earnings included Best Buy which beat on the bottom line and missed on the top line. Abercrombie & Fitch missed expectations and issued guidance well below. Other earnings accompanied by disappointing guidance included Staples, American Eagle Outfitters, and Target, and Dick’s Sporting Goods.

Housing Data

Strong housing data continues to provide amp to the sector. There are concerns that rising mortgage rates will curtail demand despite a Fannie Mae forecast that noted labor market recovery and easier loan terms will increase demand. Existing home sales rose 6.5% month over month in July to 5.39M ahead of consensus. Supply was unchanged and the median price was 13.7%, the biggest increase since October 2005. The FHFA home price index was up 0.7% month over month in June and 7.7%  year over year.  Earnings reported in the sector included Home builder Toll Brothers (TOL) who followed most of its peers with strong year-over-year growth.  Home improvement stores including Lowe’s Companies beat consensus EPS by more than 11% and raised its full-year EPS and growth guidance. Home Depot beat on the top and bottom line with same store sales up 10.7%, almost twice expectations and they also boosted guidance.

Who Needs a Weed Whacker

On the topic of “home improvement” … the National Geographic reports that the staff of the Congressional Cemetery in Washington D.C. came up with an interesting solution to their vines, poison ivy and ground cover. They hired 58 goats to eat the invasive weeds. It benefits the cemetery buy not only preventing invasive plants from killing trees which may topple headstones when falling, but also provided fertilizer to the grounds and prevents pesticides and toxins from entering the Anacostia watershed. The article also notes goats were one of the first animals to be domesticated by humans, about 9,000 years ago and they are used all over the world as a way to curb weeds and poison ivy.

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