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Market Churns as It Chews on News

Posted November 16, 2021 at 9:45 am
Patrick J. O’Hare

The futures market is trading in a manner that suggests the major indices will start the day on a flattish note.

Currently, the S&P 500 futures are up two points and are trading 0.1% above fair value, the Nasdaq 100 futures are down eight points and are trading in-line with fair value, and the Dow Jones Industrial Average futures are up 57 points and are trading 0.4% above fair value.

There is a good bit of news for the market to chew on, ranging from earnings news to economic data to political dealings.

Dow components Walmart (WMT) and Home Depot (HD) both delivered better than expected reports. WMT is up 0.9% and HD is up 1.2%. Auto parts retailer Advance Auto Parts (AAP) also had a good report, replete with increased FY21 guidance, but its stock is down 1.2% in what appears to be a sell-the-news response.

The economic data this morning featured the October Retail Sales report as the headliner. It was stronger than expected.

Total retail sales increased 1.7% month-over-month ( consensus +1.2%) on top of an upwardly revised 0.8% increase (from 0.7%) in September. Excluding autos, retail sales also rose 1.7% ( consensus +0.9%) following a downwardly revised 0.7% increase (from 0.8%) in September.

The key takeaway from the report is that spending picked up across most retail categories, reflecting the dissipating impact of the Delta variant. The lone exceptions were health and personal care stores (-0.6%) and clothing and clothing accessories stores (-0.7%).

Separately, import prices jumped 1.2% month-over-month and export prices increased 1.5%. On a year-over-year basis, import prices were up 10.7% (+5.5% excluding fuel) and export prices were up 18.0% (+17.2% excluding agricultural exports).

The key takeaway here is that it is clear inflation pressures were persisting in October. Still, Fed officials keep touting a wait-and-see attitude before being convinced that a rate hike, or more aggressive policy action, is necessary. As noted in the latest column posted to The Big Picture, we find that wait-and-see position to be absurd.

The 10-yr note yield is up one basis point to 1.63%.

The virtual meeting between President Biden and President Xi went off as expected, which is to say it didn’t produce any market-moving developments. It doesn’t hurt, though, to know that the line of communication between these two leaders remains open.

Something that risks being closed off longer is passage of the Build Back Better plan. Press reports have suggested that CBO scoring will show the revenues expected to be collected from the IRS enforcement provision will be much less than advertised. If so, that will throw a wrench in the approval process, both in the House and the Senate.

Finally, the process of nominating someone for the Fed Chair position is still ongoing, yet there is some talk that the nomination from President Biden could happen soon. One would hope so anyway in light of the confirmation process that needs to take place and in light of the fact that Fed policy has major sway in moving the capital markets.

Originally Posted on November 16, 2021 – Market Churns as It Chews on News

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