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Thursday, November 16, 2017

New economic data and prominent retail earnings results are among the headline grabbers this morning, as the market anticipates passage of the House version of a domestic tax cut plan for corporations and individuals. Tomorrow the Senate version comes up for a vote, but neither bill fully compliments the other, so expect more heavy lifting in this regard going forward.

In fact, should we see a smooth passage in both houses of Congress before the end of the week, this should generate positive sentiment in the market. Losses we’ve seen over the past week of trading may have begun with softness in Asian markets, but have stuck around due to newly found concerns whether a tax reform package will pass Congress this year. Major legislative reform has proven elusive for the Trump administration and its GOP-led lawmakers, and some are hedging these tax reform measures may be headed down the same road.

Certainly you can’t blame Q3 earnings for any headwinds in the market; results continue to impress in a general sense, even among many in the tougher Retail space. Today, we see a tale of two big-box retailers:

Discount leviathan Wal-Mart Stores (WMT - Free Report) once again outperformed estimates on both top and bottom lines in its fiscal Q3 2018 results, bringing in $1.00 per share on $123.2 billion in quarterly sales. These numbers topped the 97 cents and $121 billion expected, respectively. Comps were highest in the past 8 years. The Zacks Rank #3 (Hold) company posted Q4 earnings guidance in a range between $4.38 - 4.46; the Zacks consensus estimate had previously been $4.38, so we’ll look to see if earnings estimates rise from here, bringing the Zacks Rank along with it.

Wal-Mart shares are up sharply in today’s pre-market, north of 6% at this hour. Year to date, WMT is up more than 30%.

Another big-boxer, Best Buy (BBY - Free Report) , however, missed Q3 earnings by a penny to 78 cents per share, on $9.32 billion in revenues that fell short of the $9.35 billion in the Zacks consensus. Even still, EPS results were 30% higher than in the year-ago quarter, on comps that were up 4.4%. EPS guidance for Q4 is lower than analysts were expecting, however. The Zacks Rank #3 company has sold off 2% following the quarterly release, and shares remain up more than 30% year to date.

Econ Data Wrap-Up

Initial Jobless Claims jumped by 10,000 for the second week in a row to 249K last week; the previous week’s 239K was unrevised. This is still within the (non-hurricane-affected) multi-year range of 225-250K, synonymous with a robust U.S. labor market. Continuing claims claim down noticeably last week, to 1.86 million — again, a very strong number for overall domestic employment — from 1.9 million the previous week.

Import Prices gained 0.2% last month, posting 2.5% growth year over year. Stripping out volatile petroleum costs, this number shaves to 0.1%. Export Prices hit 2.7%, unchanged year over year and, although pretty strong, are still down a tick from the previous month’s 2.8%. Not exactly breakout numbers from a U.S. economy perspective, nor is it more of the same mundane slog-through we’ve seen for the past few years. Consider this metric “good enough” for now.

October Industrial Production outperformed expectations, putting up growth of 0.9% from the estimated 0.6%. Utilization rates notably increased as well, reaching 77% from the 76.2% expected and the 76.4% in the last read. We last saw 77% industrial production growth back in the spring of 2015, 2 1/2 years ago.

The Philly Fed Survey for the month of November came in lighter than expected: 22.7 from the 24.0 consensus estimate. This is a narrow but deep glimpse into economic strength in the 6th largest city in the U.S., Philadelphia, and while useful, often result in volatile numbers month to month. The volatility here is relatively benign.

Mark Vickery
Senior Editor

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