Sentiment on the Markets Is Decidedly “Meh”

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Despite a stronger-than-expected retail sales report, a number of key specialty retail stocks got hit hard in trading on Tuesday, pulling the broad market mostly lower. While fears over North Korea faded somewhat, as Pyongyang backed away plans from attacking Guam, investors just couldn’t muster much buying interest. Breadth measures remain remarkably narrow, pointing to trouble ahead.

In the end, the Dow Jones Industrial Average gained a fraction, the S&P 500 lost 0.1%, the Nasdaq Composite lost 0.1% and the Russell 2000 lost 0.8%. Treasury bonds weakened, the dollar was mostly stronger, gold lost 0.8% and crude oil was little changed after a big selloff on Monday.

Breadth was negative with 1.7 decliners for every advancing issues while volume was light, at 86.5% of the NYSE’s 30-day average. Utilities were the leaders, up 0.5%, while telecoms were the laggards, down 1%. When sleepy utilities and telcoms are the most exciting areas of the market, you know it’s been a quiet day on Wall Street.

Wynn Resorts, Limited (NASDAQ:WYNN) gained 6.5% after enjoying an upgrade to buy at Deutsche Bank citing channel checks noting strong demand at its Wynn Palace property. Pandora Media Inc (NYSE:P) gained 4.1% on a leadership change. And GoPro Inc (NASDAQ:GPRO) gained 1.4% after being upgraded by Goldman Sachs analysts on the upcoming HERO6 camera launch and an expected entry into the AR/VR marketplace.


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On the downside, Dick’s Sporting Good Inc (NYSE:DKS) fell 23% after reporting weaker-than-expected earnings and reporting a “panic” is underway in the retail sector on its conference call. Advance Auto Parts, Inc. (NYSE:AAP) fell 20.3% on weak results.

Coach Inc (NYSE:COH) fell 15.2% on light revenue and weak margins. And Home Depot Inc (NYSE:HD) fell 2.7% after reporting solid quarterly results as muted guidance and premium valuation weighed.

On the economic front, retail sales increased 0.6% in July from June versus estimates for a 0.4% gain. Core retail sales gained 0.6%. The details of the report were mixed amid attention on the 1.3% rise in nonstore retailers (including internet) likely related to the Amazon.com, Inc. (NASDAQ:AMZN) Prime Day success.

Conclusion


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The big story in play today is the ever-diminishing level of market breadth as investors find more and more names they just don’t want to own anymore at these nose-bleed valuations. Remember: the only time stocks were more expensive relative to earnings was during the dot-com bubble.

Not even the recently completed second-quarter earnings season could encourage much enthusiasm and joy. According to FactSet, shares of S&P 500 companies that beat analysts’ estimates averaged a 0.3% decline over the two days before reporting and the two days after reporting results.

Over the past five years, upside surprises normally drove share price gains of 1.4% on average.

This dynamic is resulting in some unusual readings. Jason Goepfert at SentimenTrader noted that despite the 1% gain in the S&P 500 on Monday — the best gain in months, in fact, as it remains within a shout of record highs — there were more stocks making new 52-week lows on the NYSE and Nasdaq exchanges combined than those making new highs. Since 1965, this has only happened on a handful of other days in 1998, 1999, 2000, and 2015.

Relaxing the requirement for occurring on a one percent upside day, Goepfert finds 21 historical occurrences similar to now. Two months later, stocks were higher only nine times.

Check out Serge Berger’s Trade of the Day for Aug. 16.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.

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Anthony Mirhaydari is founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.


Article printed from InvestorPlace Media, https://investorplace.com/2017/08/stocks-finish-mixed-amid-retail-crush/.

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