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Markets Await Big Box Retail Earnings Report

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Market indexes this week have brought us back to a mild form of cyclical value stocks being preferred to growth equities. This was part of the self-policing the market was undergoing as the Great Reopening began shining a light on the U.S. economy a few months back, which kept indexes from racing too far ahead too fast. First we saw tech stocks and other growth names reach fresh highs one week, then trades into value plays the next.

So far in this trading week, the blue-chip Dow is roughly +1%, the S&P 500 +0.75% and the tech-heavy Nasdaq is around -0.25%. Both the Dow and S&P continue to set new all-time closing highs this week, while the Nasdaq, closing in on break-even with one trading day left in the week, is still chasing its closing high reached last Thursday. The Nasdaq ended a two-session losing streak as of yesterday’s close.

With just about a half-hour until Friday’s opening bell, the Dow is +65 points, the S&P 500 +3 points and the Nasdaq -5, keeping with this week’s trend. Will next week bring us a turnabout to growth now that value stocks are growing more expensive? Too early to tell.

What we do know is the Retail sector gets to stake its claim on this excellent Q2 earnings season thus far. Of course, we know year-over-year comps — especially for predominantly Big Box retail — will be splendid, coming as they will following one of the most trying times for the sector in recent memory. But analysts have already priced quite a bit of this into estimates; will companies like Macy’s (M - Free Report) and Walmart (WMT - Free Report) be able to beat them?

This morning, a new Import Price Index report has hit the tape, with a headline print of +0.3% only coming in half of what analysts were expecting for the month. This is also well off the upwardly revised +1.1% reported for June. Fuel imports were still up +2.9%, but down from the +5.5% we saw the previous month, which makes up part of the discrepancy. Non-fuel import prices were unchanged for July.

Exports, on the other hand, gained +1.3% for the month, demonstrating pricing strength in U.S. goods going elsewhere. Year over year, exports are now +17.2%, a mere 30 basis points off the all-time high we saw in May of this year. Imports, year over year, reached +10.2% — still high from an historic perspective, but again showing some moderation.

Following a stronger-than-expected Producer Price Index (PPI) read yesterday, which helped foster new conversations about inflation running hotter than expected in today’s U.S. economy, today’s figures suggest a bit of push-pull on the trade front, which of course indicates that rampant inflation is far from a foregone conclusion at this stage. Similarly, Consumer Price Index (CPI) numbers earlier in the week also articulated moderation.

Thus, we are back to Goldilocks conditions in the market: not too hot, not too cold. This makes a pretty handy cheat-sheet for understanding why market indexes continue to post new closing highs — but at the same time, it makes it easy to see why these new highs are being reached only incrementally. With a new University of Michigan Consumer Sentiment Index for August coming out after the bell, we shall see if Goldilocks gets to stay around a bit longer.

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