Thursday, May 17, 2012

It will be interesting to see if today’s basket of favorable domestic reports will be enough to offset continuing Greece-inspired worries. But the market’s performance over the last few days in the face of similar numbers does not inspire much confidence about today’s trading action either.

Wal-Mart’s ( WMT - Analyst Report ) positive earnings surprise is not the only favorable bit of news this morning. The Jobless Claims reading this morning is favorable as well, even though it remained ‘unchanged’ at 370K, after the preceding week’s tally was revised higher by 3K. The four-week average, which smoothes out the week-to-week volatility, dropped by 4.8K to 375K.

I agree that it would have been better to see claims start moving towards the 350K level, but the current consolidation pattern is quite reassuring as it confirms the gains of the last two weeks following the trend reversal in April when claims sharply spiked higher. This pattern appears to confirm the thesis that the labor market weakness of March and April was likely the result of seasonal distortions that is steadily wearing off in the data now. We need to see this trend get entrenched as the economy’s growth momentum will be hard to sustain in the absence of a labor market recovery.

On the earnings front, Wal-Mart handily beat earnings and revenue expectations on the back of solid momentum in its domestic operations. As we have seen with a number of other big-box retailers this earning season, the earlier Easter holiday this year and warmer than normal weather also likely boosted results. We have good quarterly numbers from Sears Holding ( SHLD - Analyst Report ) as well, even after stripping out one-off gains from property sales. The company reported gross margin improvement and announced plans to lower its stake in its Canadian subsidiary.

Also on the docket for release a little later are the Philly Fed’s regional manufacturing survey and the Conference Board’s Leading indicators. The expectations for both these measures is to have improved from the prior month’s level. We will have to wait and see if this combination of broad positive domestic news flow will be enough to offset the lingering negativity coming out from across the pond.

Sheraz Mian
Director of Research