No Bull: Markets Fall on Friday, End Week in the Red

When you see hordes of shoppers next Friday clawing each other like post-Apocalyptic survivors, don’t be alarmed. This spectacle is crucial to the American economy.

The holiday shopping season accounts for three fourths of U.S. consumer spending every year. The spree kicks off on “Black Friday,” November 24. It’s when shoppers grow savage.

But on this Friday, mixed earnings cast a pall over markets. With only a week to go before Black Friday, remaining third-quarter scorecards will set investor expectations for the rest of the year.

Shares of major retailers soared today in the wake of strong earnings reports. That bodes well for the season.

The retail sector was one of the top performers. The benchmark SPDR S&P Retail ETF (XRT) jumped 2.81%.

Wall Street’s down week…

But broad markets fell today to end with a loss for the week. Lackluster earnings from other sectors weighed on equities. Culprits included a GOP tax plan that’s dead-on-arrival in the Senate. The expiration of options contributed to volatility.

All three major indices closed lower.

Traders also are concerned about special counsel Robert Mueller’s investigation into Russia’s election meddling. Reports surfaced Thursday night that Mueller has subpoenaed more than a dozen Trump officials.

Wall Street hates political uncertainty. But Mueller holds the cards.

The week ended on another troubling note. High-yield bond funds witnessed $6.8 billion in outflows over the past five days. That’s the third biggest exodus on record. The junk bond sector is a reliable proxy for the stock market. This year, the correlation has been as high as 76%.

Assets are priced for perfection. It takes little disappointment to send them lower.

The president is deeply unpopular. The GOP tax bill is under fire for being regressive. The Mueller investigation is closing in. Stocks are overvalued.

Most traders have abandoned hopes of stimulus. In a Reuters poll released Friday, most economists said tax reform won’t pass this year. They also threw cold water on the idea that the tax cuts would help the economy.

Investors are suddenly meh on the tax bill.

But there’s enough good news to perhaps keep stocks aloft throughout the fourth quarter. Global indicators are positive. Rising home prices and falling unemployment make consumers feel wealthier.

The Labor Department’s report on state unemployment, released Friday, showed strong job growth throughout the country. Jobless rates plunged in 11 states.

Black Friday will test the willingness of consumers to open their wallets.

Third-quarter earnings as a whole have been encouraging. With 91% of S&P 500 companies reporting, 74% have reported positive earnings surprises. The blended earnings growth rate for the S&P 500 is 6.1%. Nothing to sneeze at.

Energy markets got a break on Friday. Reports of a decline in Chinese crude inventories buoyed oil prices.

U.S. benchmark West Texas Intermediate increased $1.44 to close at $56.79 per barrel. International benchmark Brent North Sea crude added $1.43 to close at $62.79/bbl. Energy stocks rose with oil prices.

China’s crude stockpiles fell by 27.4 million barrels in October from September. Greater refinery activity caused the drop, a sign of economic growth. This marked the first inventory decline in 12 months. The data eased concerns that the world’s growth engine is slowing.

Europe is another bright spot. Blue chips on the Continent are enjoying a healthy quarter. Consumer demand is boosting their bottom and top lines. Political risk is receding.

Santa may still reward investors. Let’s do the numbers.

Friday Market Wrap

  • DJIA -0.43% or -100.12 points, to close at 23,358.24
  • S&P 500 -0.26% or -6.79 points, to close at 2,578.85
  • Nasdaq -0.15% or -10.50 points, to close at 6,782.79

Friday’s Big Gainers

  • Foot Locker (NYSE: FL) +28.38%

3Q earnings clear a low bar.

  • Ross Stores (NSDQ: ROST) +9.99%

3Q earnings come in strong.

  • The Gap (NYSE: GPS) +6.91%

3Q earnings exceed estimates.

Friday’s Big Losers

  • Cummins (NYSE: CMI) -4.60%

Engine maker faces competition from Tesla’s (NSDQ: TSLA) electric truck.

  • PACCAR (NSDQ: PCAR) -4.32%

Truck technology company also threatened by Tesla.

  • Electronic Arts (NSDQ: EA) -2.49%

Negative sentiment from gaming community emerges over big selling game.

Letters to the Editor

“What’s your view of buying property and renting it out as an investment?” — Scott R.

If you do it right, owning rental property is like writing your own paycheck in retirement. Passive income is one of the surest paths to financial independence.

Rising home values are pricing many people out of the housing market. Millennials with too much student debt can’t afford to buy homes. More than 8 million net new households were added over the past decade in the U.S. Renters accounted for all of them. Home ownership in the U.S. has dropped to 63.5%, near a 48-year low.

These trends are jacking up rents around the country. Welcome to the rise of “renter nation.”

You can turn renter nation into steady retirement income, by getting tenants to send you a check every month. As a landlord, your tenants are paying off the equity, while you enjoy home price appreciation.

You also get a lot of tax breaks. But keep an eye on tax reform. Legislation in Congress would cap the mortgage interest deduction.

Got a question? Drop me a line:

John Persinos is managing editor of Personal Finance and chief investment strategist of Breakthrough Tech Profits.