The indices are sitting near all-time highs but momentum has slowed and there are some signs that a pullback may develop. There is some good action in individual stocks that is keeping traders happy but the strength of the indices is masking some underlying issues.
That is the setup going into Fed Chair Jerome Powell's speech on Friday at Jackson Hole this morning. This forum has been used by past Fed Chairs (Ben Bernanke in particular) to announce significant policy moves. It is not expected that Dr. Powell will make a major announcement but there is a little added interest due to recent comments by President Trump that he thought Powell would be 'an easy money' guy.
The most important factor to keep in mind as you contemplate the action today is that the market has simply refused to embrace a negative narrative. It has had plenty of chances to react to trade issues and political news but it just shrugs and continues on its way.
It is already well anticipated that the Fed is going to continue to roll out some additional interest rate hikes. The market has not been concerned about a more hawkish Fed because the economy is rolling along nicely and there still are no signs that inflation is ramping up too quickly. It is a Goldilocks environment in many ways and the most likely news from Jackson Hole is that the Fed is going to just keep doing what it has been doing.
Stay focused on the price action. As I've written many times the market loves to love the Fed. Unless there is some very surprising news today it is unlikely that we will see a sudden collapse on this speech.
One confirmation of the strength in the economy has been some great earnings reports in the retail sector. Target (TGT) , Kohl's (KSS) , Walmart (WMT) and Nordstrom (JWN) have all surpassed expectations. Footlocker (FL) joins the group today but the big question for it, and retail in general, is whether these stocks can keep running.
Footlocker reported EPS of $0.75 which was 5 cents better than expected. Revenues were slight ahead of expectations and same store sales were up 0.5%. it is a solid report but is it enough to bring in additional buyers?
FL isn't particularly expensive. It trades with a trailing P/E of 13 and is looking at EPS growth of around 8% for the FYE January 2020. Revenue growth this quarter was 5%. This is a mature company that is not going to grow quickly but it has consistency and some opportunity for upside surprises.
Technically the stock has filled a gap that was created on a strong upside move following a good report last quarter. The stock ran up nicely into June but then gave back all the gains before bouncing back up recently. This pattern will likely cause some concern that another 'sell the news' reaction may occur. In addition, the retail group in general is seeing some slowing momentum so there is probably less inclination to chase this positive report.
Footlocker is down in early market trading on the positive news and I'd be waiting for a further pullback if I was interested in buying. This is not a stock to chase higher at this point.
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