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Market Commentary for the week ending November 29th, 2019
- U.S. stocks closed the week higher helping make for a good month of November
- Retailers’ earnings reports come in mixed as the holiday shopping season kicks off
- Multiple reports on the housing sector show continued strength with prices higher and sales remaining relatively strong.
Market Performance Summary
Notable Market Headlines
It was a shortened week for investors with the market closed for the Thanksgiving holiday on Thursday. The trading that did happen this week was relatively quiet with the ups and downs in the overall market being relatively muted. The week did close on a bit of a sour note due to some concerns about the coming holiday shopping season and the health of the consumer. The general consensus though has been that sales should be strong given the strong jobs market and wages moving higher.
At the closing bell, large U.S. stocks were higher by +1.1% as measured by the S&P 500 with the technology and consumer discretionary sectors posting the strongest gains. The Dow Jones Industrials lagged behind but were still higher by +0.6% while the NASDAQ Composite jumped +1.7%. Small U.S. stocks had a very strong week up +2.2% outpacing their counterparts. This strong week for small stocks did help close the year-to-date difference in performance but large stocks remain well ahead up +27.5% compared to small stocks up 22.0%.
International stocks did not see the same fortune as U.S. stocks this week with mixed results around the world. Developed countries overall were up +0.3% but it was mixed with Australia’s market doing very well gaining +1.4% while the Eurozone was up just +0.1% and Japanese stocks were lower by -0.2%. Emerging markets were lower by -0.8% impacted meaningfully by China’s market down -0.9%. Year-to-date developed country stocks are up +18.5% while emerging markets are lagging far behind up just +9.7%.
The alternative asset classes were mixed this week with real estate stocks jumping +1.8% and are now higher by +24.0% in 2019. Commodity prices went the other direction falling -2.2% on a more than $2.00 drop in the price of a barrel of oil to $55.42. Gold was little change up +0.1%.
Bond prices were little changed as well up +0.1% and higher by +8.9% year-to-date.
Best Buy (BBY), one of the largest consumer electronics retails in the nation, is going into the big holiday shopping season strong reporting quarterly earnings that top estimates and raising expectations for the coming quarter. In an effort to compete with online giant Amazon (AMZN), the company is offering next-day delivery on thousands of items with no membership requirements. This news was all welcomed by investors with the stock jumping +11.0% for the week and now higher by +55.7% year-to-date. Although these are extremely impressive gains, as the accompany graph illustrates it has not been a smooth ride for investors with the stock still below its all-time high hit in August 2018.
Under Armour (UA), manufacturer and retailer of athletic apparel and more, has been struggling to grow revenue for more than 2 years and is also dealing with a federal accounting investigation. The company’s stock has traded mostly sideways since the summer of 2018 and remains more than 60% off its 2016 high. One Wall Street analysts things the worst may be behind them raising his rating on the stock resulting in it jumping this week by +10.5%.
Dollar Tree (DLTR), an operator of more than 15,000 discount retail locations including its Family Dollar stores, reported a decline in earnings during the most recent quarter missing Wall Street analyst estimates in spite of higher total sales and an increase in same-store sales. The company further lowered guidance for the coming quarters impacted by a range of issues including trade tariffs and higher payroll costs in its distribution centers. The stock closed the week down -16.1% coming off its all-time high hit just over a month ago.
Hewlett Packard Enterprise (HPE), a $29 billion in revenue supplier of information technology goods and services, reported a another drop in quarterly revenue missing Wall Street estimates. The company pointed to economic and geopolitical uncertainty causing longer sales cycles for bigger deals. As the below graph shows, it has been a tough 2019 for this company with revenue falling in each quarter with the decline accelerating. Investors were disappointed with the stock down -7.5% for the week.
Economic Indicator - Reported
The national Case-Shiller Home Price Index increased by +0.4% in the most recent month compared to the month before. Smaller cities such as Phoenix, Charlotte, and Boise, Idaho saw some of the biggest increases while prices in New York and California are lagging behind. During the past 12 months prices are up +4.6% but the rate of increase is slowing from its prior pace.
New Home Sales fell slightly in the most recent month to an annualized rate of 733,000 from an upwardly revised 738,000 in the prior month. Although this was a small drop, it came in meaningfully better than economists had expected and is up by a very impressive +32% over the same period a year ago. The supply of new homes continues to dwindle down to 5.3 months having peaked at the end of last year a 7 months.
Third quarter Gross Domestic Product (GDP) grew more than originally reported revised higher to +2.1% from the initial report showing a gain of +1.9%.
Order for Durable Goods surged in October, coming off a sharp drop the month before, higher by +0.6% versus the average economists’ estimate of a drop of -1.1%. The majority of the increase came from military spending on jets and ships. Removing this military spending from the report leaves the gain at just +0.1% indicating continued sluggishness in the industrials sectors of the economy.
Economic Indicators – Upcoming
The following economic data is expected in the coming week:
- Employment Report
- Factory Orders
- ISM Manufacturing Index