Stocks Finish Tuesday Mixed on German Terror Threat

Retailers take focus amid Walmart, TJX and Home Depot earnings

Investors were largely indecisive on Tuesday as a mid-day rebound was unwound into the closing bell on reports of a possible bomb attack in Germany — with reports of possible attacks on a stadium and the train system.

In the wake of the terrible over-the-weekend attack on Paris, tensions are high.

In the end, the Dow Jones Industrial Average gained a fraction after hitting resistance at its 200-day moving average, the S&P 500 lost 0.1%, the Nasdaq Composite gained a fraction, and the Russell 2000 lost 0.3%. Treasury bonds were slightly stronger, the dollar strengthened, gold declined 1.4% to continue an epic selloff, and crude oil lost 2.4% to close at $40.47 per barrel.

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Healthcare stocks led the way with a 0.4% gain, thanks to pharmaceuticals followed by telecoms. Utilities and energy were the laggards, falling 1.9% and 1.2%, respectively. Netflix, Inc. (NASDAQ:NFLX) gained 5.2% on reports that several hedge funds added new positions or bolstered existing positions in the stock, given all the attention on cable/satellite cord-cutting.

Retail results were in focus. Home Depot Inc (NYSE:HD) gained 4.4% on a Q3 earnings beat, driven by a 5.1% increase in comp-store sales. TJX Companies Inc (NYSE:TJX) gained 3.9% on a Q3 beat and customer traffic momentum. And, Wal-Mart Stores, Inc. (NYSE:WMT) gained 3.5% after reporting slightly better-than-expected earnings on a 1.5% increase in comp-store sales, in line with estimates. Store traffic increased to 1.7% from 1.3%.

On the downside, Dick’s Sporting Goods Inc (NYSE:DKS) dropped 9.4% on a Q3 earnings-per-share miss on weaker-than-expected comp-store sales (0.4% vs. an expected 1.9%) and lower guidance. Urban Outfitters, Inc. (NASDAQ:URBN) lost 3.8% on weaker-than-expected comp-store sales.

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On the economic front, the October consumer price inflation report rose just 0.2% month over month, in line with estimates. The annual core inflation rate, removing volatile food and energy prices, clocked in at a 1.9% annual rate. Industrial production dropped 0.2% over September, below expectations, for a 0.1% gain due to lower output in the mining and utility sectors. Manufacturing activity came in slighter better than expected.

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On Wednesday, the release of the Federal Reserve’s October meeting minutes will bring the threat of a December interest rate hike back into focus — the reason stocks have been drifting lower this month.

Technical indicators continue to send warning signals, with stocks standing alone against declines in commodities and high-yield bonds. Market breadth, or the percentage of stocks in uptrends, has been falling. And fear, as represented by the CBOE Volatility Index (VIX), has been on the rise.

As a result, I continue to recommend a defensive positioning to clients, with Edge subscribers enjoying a 24% gain in their VelocityShares 2x VIX (NASDAQ:TVIX) position, while Edge Pro subscribers are holding a 101% gain in their iPath S&P 500 VIX Short Term Futures TM ETN (NYSEARCA:VXX) Nov $19 calls.

Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. Two-and four-week free trial offers have been extended to InvestorPlace readers.

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