Market analytics: the reason stocks are rising is because of earnings

Gregory FrenchNov 24, 2017News3179

Retailers were in focus for Black Friday. The S&P 500 and Nasdaq Composite finished at all-time highs Friday, with all three main benchmarks booking their first weekly gains in three weeks. Retailers were in focus amid the Black Friday shopping holiday, a day after domestic markets were closed in observance of Thanksgiving.

What are the main benchmarks doing?

The S&P 500 SPX, +0.21% gained 5.34 points, or 0.2%, to 2,602.42, closing at a record. Seven of the 11 main sectors finished in positive territory. Technology and materials shares led gains, while telecoms lagged behind.

© Authors of the article: Barbara Kollmeyer & Anora M. Gaudiano.
© Source: MarketWatch

What are the main benchmarks doingThe Nasdaq Composite Index COMP, +0.32% advanced 21.80 points, or 0.3%, to 6,889.16, also clinching an all-time high. The Dow Jones Industrial Average DJIA, +0.14% added 31.81 points, or 0.1%, to 23,557.99, less than half a percentage point from its record finish at 23,590.83.

All the main indexes posted their first weekly gain in three weeks. For the week, the S&P 500 and the Dow both posted a weekly gain of 0.9%, while the Nasdaq rose 1.6% over the four-session trading period, according to FactSet data.

Meanwhile, the Russell 2000 index RUT, +0.16% the gauge of small companies, also closed at a record, up 2.40 points, or 0.3%, at 1,519.16. Equity markets closed at 1 p.m. Eastern Time on Friday, while the Securities Industry and Financial Markets Association recommended a 2 p.m. Eastern close for bond markets.

What could help drive markets?

Adobe Analytics data showed online shoppers spent $1.52 billion on Thanksgiving Day, with smartphones accounting for 46% of all traffic going to U.S. retail websites.

Opinion: Investors can feel safe ignoring the Black Friday and Cyber Monday shopping reports. You learn nothing about the stock market’s performance in December by focusing on its immediate reaction to Black Friday.

On the data front, a survey of purchasing managers showed that businesses grew in November at the slowest pace in four months. The Markit flash manufacturing PMI fell to 53.8 from 54.6, while the flash services PMI fell to 54.3 from 54.6. A reading of 50 or better indicates improving conditions.

Which stocks are in focus?

Bit department store chains such as Macy’s Inc. M, +2.13% and Kohl’s Corp KSS, +1.03% saw shares rally. Macy’s gained 2.1%, while Kohl’s rose about 1%.

Gap, Inc.’s stock GPS, +1.61% gained 1.6%.

Amazon.com Inc. AMZN, +2.58% shares closed up 2.6%, while Wal-Mart Stores Inc. WMT, +0.22% booked a modest 0.2% rise.

But not all retailers were doing well on Friday. Shares of Target Corp. TGT, -2.80% fell 2.8%, while eBay Inc. EBAY, -0.28% fell 0.3%.

General Electric GE, +0.22% shares climbed modestly, up 0.3%, after a Securities and Exchange Commission filing said board member James Tisch bought three million shares worth $53.7 million late Wednesday. That comes on the heels of a purchases of a total about $2 million in stock by the company’s new chief executive, John Flannery, and board member Francisco D’Souza, over the past week. GE shares closed at a 6 ½-year low on Nov. 21 amid disappointment over the conglomerate’s turnaround plan.

GE has lost 42% of its market value since the start of the year.

What are analysts saying?

“The reason stocks are rising is because of earnings. The beat rates so far have been so high suggesting that corporate profits across sectors have been growing so quickly, even analysts can’t keep up,” said Crista Huff, chief analyst at Cabot Undervalued Stocks Advisor.

“The pre-sales data indicate a better performance compared with last year; early numbers point at a solid 18% year-over-year increase in November sales so far. U.S. households’ holiday spending could increase as much as 4% compared with last year, according to Bloomberg news,” said Ipek Ozkardeskaya, senior market analyst at LCG.com.

Analysts are continuing to release their stock-market forecasts for the coming year. Strategists at Société Générale said in their outlook released Thursday that bullish investors may have a tough time in 2018.

“We expect stretched valuations and rising bond yields to limit equity index performances in 2018 and the prospect of a U.S. economic slowdown in 2020 to further cramp returns in 2019,” said a team led by Roland Kaloyan, head of European equity strategy.

What are other assets doing?

European stocks SXXP, -0.13% ended higher. In Asia ADOW, +0.20% stocks moved mostly higher, with China’s Shanghai Composite SHCOMP, +0.06% stabilizing after a losing streak.

U.S. oil futures CLF8, +1.64% settled at more than two-year highs as investors ahead of an important meeting of producers. The ICE U.S. Dollar Index DXY, -0.38% fell and gold futures GCZ7, -0.33% ended modestly lower.

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Total: 4 comments
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  1. Jason Hensel
    2
    7
    Jason HenselJournalist
    2017-11-25, 8:44AM
    To be sure, you shouldn’t use this inverse correlation as a trading tool. That’s because it is not significant at the 95% confidence level that statisticians typically use to determine if a pattern is genuine. The correct investment conclusion to draw is that you learn nothing about the stock market’s performance in December by focusing on its immediate reaction to Black Friday.
    +2
  2. Tommy Miles
    2
    5
    Tommy MilesJournalist
    2017-11-24, 7:37PM
    There are still plenty of liquidity and low inflation. The world economy is just starting to grow, including the US. Despite what the liberals think, the US economy had grown very little under Obama, the first four years were essentially in recovering from the Clinton housing and mortgage bubbles. This year the US economy is growing a bit faster and will continue to grow faster thus the stock markets is just reflecting that. The corp tax cut will definitely help.
    +10
  3. Gregory French
    3
    6
    Author: Gregory FrenchJournalist
    2017-11-24, 6:58PM
    Might the insignificance of the Black Friday sales be a function of the growing importance of sales on the Saturday and Monday following Thanksgiving - so-called Small Business Saturday and Cyber Monday? I don’t think so. The inverse correlation I found when focusing just on Black Friday also emerged when I related the stock market’s performance on both that day and the following Monday with how it did thereafter until the end of the year.

    This is all good news: It means that you can savor your Thanksgiving dinner, watch football games to your heart’s content and enjoy hanging out with friends and family, all without needing to pay any attention to the initial sales numbers and how the stock market is reacting.
    +8
    1. Randall Mark
      6
      Randall MarkJournalist
      2017-11-24, 7:23PM
      This week’s best investment advice: Ignore the initial reports on how well or poorly retailers are faring!

      That’s because those initial reports at best are worthless as a guide to how retailers, and the stock market as a whole, will do from now until the end of the year. And they may even be worse than worthless, as the stock market in December often moves in the opposite direction to how it does right after Thanksgiving.
      +3
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