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Profit from the Pros By Kevin Matras Executive Vice President
Dow And S&P Close Higher On Retail Earnings
Stocks closed mixed yesterday with the Dow and the S&P in the green while the Nasdaq slipped into the red.
The Dow led yesterday's gains, aided in part by strong earnings from big box retailers, including Home Depot and Walmart.
We'll get more earnings today with another 102 companies on deck (383 in total for the rest of the week).
In other news, the Housing Starts and Permits report saw Starts fall to 1.446 million units (annualized) vs. last month's upwardly revised 1.599M and views for 1.540M. Permits fell to 1.674M vs. last month's upwardly revised 1.696M, but they beat the consensus for 1.650M.
Industrial Production rose 0.6% m/m vs. views for 0.3%. Manufacturing Output also rose with a 0.7% m/m gain vs. the consensus for 0.2%. The Capacity Utilization Rate ticked up as well coming in at 80.3% vs. last month's 79.9% and expectations for 80.1%.
Today we'll get MBA Mortgage Applications, Retail Sales, Business Inventories, and the FOMC Minutes from last month's Fed meeting.
Traders will be scrutinizing every word for clues on what the Fed will do at their next meeting in September. While they raised rates by another 75 basis points in July, they stopped short of saying what they expected to do at their next meeting on September 20-21. While they hinted at getting the Fed Funds rate to between 3-3.5% (it's at a mid-point of 2.38% now), they said they will judge the economy at each meeting and make their decision at that time.
Since then, inflation did tick down a bit from its peak the month prior, but still remains near 40-year highs. The latest employment report came in well above expectations, suggesting the economy remains heated, in spite of some pockets of the economy showing a marked slowdown.
These mixed signals have Fed watchers wondering how big the Fed will go next month (and for the rest of the year as we have meetings in November and December as well).
Looking at the 10-year Treasury, doubts about the Fed's aggressiveness can be seen in the 10-year Treasury yield. It peaked about a week before the Fed's last meeting at 3.483, but has since fallen -18.9% to 2.824.
The next meeting is still more than a month away. So the next best thing will be to analyze every word that comes out of today's minutes.
In the meantime, the market has a fantastic rally going on. The Nasdaq and the Russell 2000 have already exited their bear market and have begun a new bull.
The S&P only needs another 2.20% more to do the same.
See you tomorrow,
Executive Vice President, Zacks Investment Research
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