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Markets Close Mixed as Retail Thrives but North Korea Threatens

Now in its ninth year, the economic recovery is getting long in the tooth. But it still has bite. Positive economic news this year has pushed stocks up, up and up.

But the markets closed mixed on Wednesday. North Korea’s announcement that it could hit the U.S. with a nuclear missile darkened Wall Street’s mood. The Dow Jones Industrial Average rose; the S&P 500 and Nasdaq fell.

The saber-rattling was leavened by healthy economic data. The U.S. Commerce Department on Wednesday said it had revised third-quarter gross domestic product growth upward from 3% to 3.3%. That’s the fastest pace in three years.

Strong business investment fueled the growth spurt. Corporate spending boosts the technology sector, which has enjoyed a stellar year. But investors Wednesday rotated out of pricey tech shares and into financial services.

The Senate on Wednesday continued work on tax reform. The bill still faces an uphill battle. But improving odds of passage are enhancing the appeal of bank stocks.

The housing sector keeps getting hotter. The National Association of Realtors (NAR) reported Wednesday that its pending home sales index in October rose 3.5% on a year-over-year basis. Pending contracts are a leading indicator for the housing market. Pending sales later become actual sales.

NAR also reported that the median home sales price in October rose 5.5% from a year earlier. The median home now costs $247,000. The home is the biggest asset for most Americans. When housing thrives, consumers feel wealthier. That prompts them to shop.

Retail stocks were among the biggest gainers Wednesday. The holiday season is shaping up to be prosperous. Retail stocks once considered at risk from Amazon (NSDQ: AMZN) are bouncing back.

Target (NYSE: TGT) rose sharply on Wednesday. The Big Box chain has reinvented itself to become a powerful e-commerce player. Target is a Growth Portfolio holding in our flagship publication Personal Finance. Target closed the day up 8.94%.

But the rising retail tide isn’t lifting all brands. Below, I examine an iconic retailer that appears doomed. The company’s woes are a cautionary tale for investors. First, let’s do the numbers.

Wednesday Market Wrap

  • DJIA: +0.44% or +103.97 points to close at 23,940.68
  • S&P 500: -0.04% or -0.97 points to close at 2,626.07
  • Nasdaq: -1.27% or -88.02 points to close at 6,824.34

Wednesday’s Big Gainers

  • Macy’s (NYSE: M) +8.20%

Black Friday lifts retailer.

  • Advance Auto Parts (NYSE: AAP) +7.58%

Auto sector growth boosts parts supplier.

  • Nordstrom (NYSE: JWN) +7.27%

Retailer’s e-commerce strategy paying off.

Wednesday’s Big Losers

  • Autodesk (NSDQ: ADSK) -15.86%

Restructuring plan weighs on software firm.

  • Lam Research (NSDQ: LRCX) -8.68%

Bearish sentiment drags down chip makers.

  • Applied Materials (NSDQ: AMAT) -7.71%

Chip maker caught in sector downdraft.

Letters to the Editor

Sears: Going under…

How many times have you heard someone on CNBC say: “This stock is a screaming buy!” But just because a smug guy in a suit is saying it, doesn’t make it true. There could be hidden risks. Which brings me to this letter from a reader:

“Sears stock has been moving up. Is the chain turning itself around?” — Alan G.

In a word: no. Investors are optimistic because Sears has made a few superficial changes. But deep discounts and marketing gimmicks won’t save this turkey.

Sears Holdings (NSDQ: SHLD) this month released one of its financial updates. As usual, it was ugly. Sears is bleeding red ink.

SHLD shares rose 0.96% on Wednesday. Year to date, the stock has plunged by about 50%.

Sears is scheduled to release third-quarter operating results on Thursday. Wall Street expects the company to post a per-share loss of -$4.46, compared to -$3.11 in the same quarter a year ago.

While the retail sector as a whole enjoys a bountiful holiday season, Sears faces bleak prospects.

Sad fact is, many investors are rooting for Sears, against their better judgment. They’ve been holding the stock for years in their 401k plans and Individual Retirement Accounts (IRAs). The longer they deny reality, the more money they’ll lose.

Sears Holdings operates in two segments: Kmart and Sears Domestic. Sears has closed scores of failing Kmart locations.

Kmart and Sears Domestic outlets sell a variety of household names. But despite its famous brands, Sears is losing customers in droves. To raise cash to survive, the company has slashed costs and sold off assets.

Founded in 1899 by Richard Warren Sears and Alvah Curtis Roebuck, Sears began life as the Sears-Roebuck mail order catalog company. The firm started opening retail locations in 1925.

Sears has graced retirement portfolios for generations. The brand is now a dinosaur. Shoppers are savvier. They view Sears stores as dingy and outdated. The company’s e-commerce presence remains weak. Sears is likely to go under.

Have you ever invested in a company that went from bad to worse? Please share your story. From suffering comes wisdom.

You can reach me at: mailbag@investingdaily.com

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

 

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