After a strong earnings-driven rally yesterday, U.S. equity benchmarks gave back some of those gains Wednesday following some slack retail sales data.
Retail sales dipped 0.30% in September, disappointing analysts that had been forecasting a 0.30% increase. In better news, the Commerce Department revised the August figure to a gain of 0.60%, but as stocks’ performance today indicates, market participants focused more on the September number, a logical approach considering the holiday shopping season is essentially upon us.
I’ve been reluctant to join the calls regarding a recession, but I’ve also been clear that the consumer is integral when it comes to holding things together for the U.S. economy. Another bit of silver lining is that the September retail sales figure was the first decline in seven months and that the decline was largely attributable to spending drops at motor vehicle supply stores.
Among Dow components, looming earnings reports from the likes of Apple (NASDAQ:AAPL), Home Depot (NYSE:HD), McDonald’s (NYSE:MCD) and Walt Disney (NYSE:DIS) should bring the state of the consumer into clearer view.
For today, the Nasdaq Composite dropped 0.30% while the S&P 500 declined 0.20%. The Dow Jones Industrial Average retreated by 0.08% with just 12 of its 30 components higher in late trading.
Johnson & Johnson (NYSE:JNJ) was the only Dow stock to gain more than 1% today on what looked liked some follow through on Tuesday’s earnings report as well as some favorable reaction to some of the various opioid-related verdicts the company is contending with.
Other Bright Spots
In late trading, JPMorgan Chase (NYSE:JPM), the largest U.S. bank by assets, was clinging to a modest gain. This might be another example of follow through on yesterday’s earnings report as well as a sympathy move on the back of Bank of America’s (NYSE:BAC) strong report out earlier today.
“Given the fact that multiple rate cuts have already occurred, with the possibility for more, this was not surprising,” said Morningstar in a note on JPM out yesterday. “Management also nailed down its expense guidance a bit more, coming in at roughly $65.5 billion, whereas before the guidance was simply for less than $66 billion. After incorporating these and other changes, we are increasing our fair value estimate to $114 per share from $110.”
Finally Some Good News
Shares of 3M Co. (NYSE:MMM) traded lower today, extending the stock’s run as one of this year’s worst-performing Dow names, but the stock is up more than 8% over the past week and some analysts are waxing bullish on the industrial conglomerate.
“Even after the 4% bounce on Oct. 11, we still believe the stock trades at a discount to intrinsic value in a diversified industrial space with few bargains,” said Morningstar in a recent note on 3M. “As a GDP-plus business, 3M doesn’t offer much in the way of top-line growth. Even so, we like the name with speculation of an upcoming recession because 3M is a defensive stock.”
While there was some talk that the Organization of the Petroleum Exporting Countries (OPEC) may extend recent supply cuts, Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) were the worst performers in the Dow Jones today.
Big oil companies report third-quarter earnings later this month, but some analysts are already warning that estimates could be missed and that could explain some of the malaise in the group today. This year, energy is the worst-performing group in the S&P 500.
Bottom Line on the Dow Jones Today
Reminder that International Business Machines (NYSE:IBM) reports today after the bell and that tomorrow is light on the Dow earnings front with none of the index’s members report. American Express (NYSE:AXP) and Coca-Cola (NYSE:KO) resume Dow earnings season on Friday before the bell.
As for the consumer, there are some good data points to consider.
“Perhaps the biggest difference versus last cycle: consumers are less indebted. On the eve of the financial crisis consumers were contending with record levels of debt,” according to BlackRock. “At its peak in 2007, household debt was more than 130% of disposable income. Today household debt is less than 100% of income. Not only are debt levels lower, but thanks to historically low yields the cost of servicing the debt is near an historic low.”
As of this writing, Todd Shriber did not hold a position in any of the aforementioned securities.