5/12/17 – Stocks Down, Retail Hit Hard

Stocks Decline Slightly, Retail Punished

After three positive weeks, stocks retreated in the second week of May. Retail earnings dominated the financial headlines and most of those disappointed investors. For the week, the Dow and S&P 500 decreased 0.5% and 0.3%, respectively.

Retail Demise – Most of the major department stores reported earnings this week and the stocks sold of sharply as a result. Even in an environment where people are pretty negative on brick and mortar retail, the results pushed names like Nordstrom, Kohl’s and Macy’s down approximately 20% this week. This downward move is huge considering we weren’t talking about the holiday shopping season. Declining same-store sales seemed to be the major concern. Many retailers have too many stores and most haven’t yet figured out how to effectively run their online sales. While online sales don’t have the costs of a physical store, the fulfillment cost is very high on a per-order basis. Instead of shipping large crates to individual stores, they must ship thousands of individual orders. Traditional retail needs to figure out how to effectively and profitably make the transition. We will continue to see a large shift in the retail sector over the coming years as stores close and online shopping continues to grow. Read More

French Elections – Emmanuel Macron won the French Presidential election on Sunday as expected. Markets initially reacted positively, but quickly moderated as the result was essentially priced-in over the prior two weeks. It will interesting to see how Macron will govern. Given that he started a new political party, he doesn’t have a built-in coalition. He says he will have candidates in Parliamentary elections next months, but it’s unclear how many will be elected. Either way, he will need to quickly build a governing coalition to start implementing his policy ideas. Read More

Ransomware Hack – Late Friday news broke of a large-scale ransomware attack affecting hospitals in the UK and companies around the world, including FedEx. A ransomware attack shuts down a computer network then attempts to get a ransom payment to ‘unlock’ the system. It’s a high-tech form of piracy. This is a growing problem and one companies will have to be vigilant in protecting themselves from going forward. Read More

Oil rebounded this week, increasing 3.4% to close at $47.89/barrel. The yield on the 10-yr Treasury decreased, closing at 2.33% from 2.35% a week ago. The average rate on a 30-yr fixed rate mortgage ticked higher to 4.05% from 4.02% last week.

Close Weekly YTD
Dow Jones 20,896.61 (0.5%) 5.7%
S&P 500 2,390.90 (0.3%) 6.8%
Oil 47.89 3.4% (11.1%)
10-yr Treasury (∆ in bps) 2.33 (2) (12)

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