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courtesy of Getty Images
courtesy of Getty Images
Stock futures are slightly higher today, following tiny advances in the 10-year yield overnight.
Despite solid profits, a cautious “risk off” tone has taken hold late this week.
Retail sales increased by 0.6 percent in June, beating forecast expectations of a drop.

In Wall Street’s version of “follow the leader,” the first week of earnings season concludes with major indices closely tracking the bond market. Earnings are important, but the Fed’s actions may have a greater impact right now. The Fed is still the girl everyone wants to dance with in the short run.
You can nearly predict where markets are headed these days just by looking at the 10-year Treasury yield, which fluctuates based on what the Fed could have up its sleeve. In pre-market trade, the yield recovered back from lows this morning to approximately 1.32 percent, while stock indices rose somewhat. This was in contrast to yesterday, when rates fell and equities fell with them. Even still, rates have fallen approximately six basis points since Monday, and markets have had a bad week.
It’s uncertain how long this yield tracking will continue, but a large influx of earnings due next week may offer stocks a chance to react more to fundamental corporate news rather than the back and forth in fixed income.
Meanwhile, retail sales for June blew Wall Street’s conservative predictions out of the water this morning, and stock indices nudged up in pre-market trade as a result of the news.
Headline retail sales gained 0.6 percent, beating predictions of a 0.6 percent drop, and the result looked even better when vehicles were excluded, up 1.3 percent vs. expectations of 0.3 percent. Those figures are staggering, and they demonstrate the difficulty experts have in this market. By a long shot, the forecasts underestimated consumer strength. However, it’s possible that this is a data blip that will be smoothed out with July’s figures. We’ll have to wait and see what happens.
ADDITIONAL INFORMATION FOR YOU
Yesterday, what appears to be a “risk-off” pattern that began earlier in the week persisted, but this time Tech was caught up in the selling as well. In fact, Tech was the day’s second-worst performing sector, trailing only Energy, which continues to plummet on expectations that more petroleum will flow soon as a result of OPEC’s agreement.
Starting on Tuesday, investors flocked to fixed income and “conservative” sectors, and the trend persisted on Thursday. When your leading sectors are Utilities, Consumer Discretionary, and Real Estate, as they were yesterday, it’s evident that the bond market’s message to stocks is being heard loud and clear.
The drop in rates this week isn’t necessarily good news for financial firms. However, the Financials performed admirably yesterday, with some of them recovering from an early loss. It was a strong showing, and we’ll see if it can continue into Friday.
Energy fueled the surge earlier this year, but it is now underperforming due to lower oil prices. Crude’s softness isn’t likely to last—and prices of $70 a barrel aren’t exactly cheap—but the fact that it can’t sustain $75 speaks volumes. The strength just seems to dissipate up there, technically. Crude oil is marginally higher this morning, although it is still trading below $72 per barrel.
Following a strong rally earlier in the week, all of the FAANG stocks lost ground Wednesday. Despite a huge analyst price target raise to $900, another key Tech name, chipmaker Nvidia (NVDA), was brought to the cleaners with a 4.4 percent fall. For the better part of the year, NVDA has been on a tear.
Some investors may be fleeing for safety as a result of this week’s surprisingly high June inflation numbers, however no investment is ever truly “secure.” In his congressional testimony on Wednesday and Thursday, Fed Chairman Jerome Powell sounded dovish, but even he conceded he hadn’t expected inflation to rise so far above the Fed’s 2 percent target.
To put things in perspective, the S&P 500 Index (SPX) rallied late Thursday to close far above its lows. As the adage goes, this is frequently a sign of people “buying the dip.” Dip-buying has been a trend this year, and with bond yields so low and the money supply so large, it’s difficult to argue that capital on the sidelines won’t continue to flow in if stocks fall.
Apple (AAPL) and Microsoft (MSFT) are two favorite stocks among TD Ameritrade clients, according to research, and both have benefited from this “dip buying” pattern on a regular basis. Both lost a lot of ground yesterday, so if they start to rebound today, examine whether it’s part of a larger trend in which investors are re-entering the market after a period of weakness. One day, on the other hand, is never a pattern.
After being hammered yesterday, reopening stocks (those connected to the economy’s reopening, such as airlines and restaurants) are doing slightly better in pre-market trade today.
In other business news, vaccination stocks rose today when Moderna (MRNA) was added to the S&P 500. BioNTech (BNTX), a vaccine partner of Pfizer (PFE), is also up. MRNA gained 7% in pre-market trading.
Earnings activity slows down a little this week before picking up again next week. High-profile firms likely to open their books this week include Netflix (NFLX), American Express (AXP), Johnson & Johnson (JNJ), United Airlines (UAL), AT&T (T), Verizon (VZ), American Airlines (AAL), and Coca-Cola (KO).
It might be fascinating to hear how the global reopening is progressing from the airlines. Delta (DAL) stunned investors this week with an earnings beat, but it also raised concerns about increasing fuel prices. While vaccination rollouts in the United States have aided in the reopening of travel, other sections of the world are not faring as well. Worries about the Delta Covid version don’t seem to be helping matters.
The market may be looking for commentary from UAL and AAL executives regarding the state of global travel as a proxy for economic health, in addition to the data that they will disclose next week. Travel appears to be returning faster than predicted, according to DAL. Will other airlines have the similar reaction? One method to find out is to look at your earnings.
Even with the Delta variety of Covid gaining traction, there’s no doubt that sporting events are once again drawing large crowds, at least in the United States. The baseball All-Star Game, for example, was sold out this week. Big occurrences like those could bode well for KO’s earnings report. PepsiCo (PEP) has already announced a strong quarter. We’ll see if KO can respond, and if its executives have anything to say about growing producer pricing chasing consumer goods businesses.

CANARIES LOSE HEIGHT IN THE DAY’S CHART. The Dow Jones Transportation Average ($DJT—candlestick) and the Russell 2000 (RUT—purple line) index of small caps are two popular “canaries in the coal mine” for the economy… [+]. Neither has been performing very well recently, which is arguably bearish for the market as a whole. As we learned from Delta this week, high fuel costs may be beginning to weigh on certain transportation corporations. FTSE Russell and S&P Dow Jones Indices are the data sources. The thinkorswim(R) platform provided the data for this graph. Only for the sake of illustration. Past performance isn’t a guarantee of future success.
FTSE Russell and S&P Dow Jones Indices are the data sources. The thinkorswim(R) platform provided the data for this graph.
Confidence Exercise: For a brief period on Thursday, the 10-year Treasury yield fell below 1.3 percent, but it quickly recovered to that level by the end of the day. It’s currently fallen significantly from earlier this week’s highs. Fixed income strength—yields decrease as Treasury prices rise—often indicates a lack of faith in economic development.
Why do folks appear to be apprehensive at this point? With the market now at record highs, it might be as simple as a lack of catalysts. Yes, bank earnings were generally high, but financial stocks were already one of the best-performing sectors year-to-date, so robust earnings may have served as an excuse for some investors to cash in. Furthermore, with earnings expectations so high in general, a corporation must provide a huge beat to impress.
The Covid Puzzle: Anyone who has been watching the news recently has likely seen multiple reports about how the Delta variety of Covid has taken off in the United States, with case counts increasing in nearly every state. While the human cost of this virus outbreak is undeniable, it appears to be a bit of an afterthought for the market, at least so far. It could be because many of the new instances are in sparsely populated areas of the country, making it appear like a distant problem for those of us who live in major cities. It could also be because so many of us have been vaccinated and believe we are protected.
However, there is another issue that has to do with numbers. Consider what it means when you hear on the news that the number of Covid cases has increased by 50%. To use a baseball comparison, even if a batter boosts his batting average from.050 to.100, he will still be in the lineup on a regular basis since his average is still too low. Covid cases plummeted to extraordinarily low levels in June, hovering around 11,000 per day, implying that a 50 percent increase isn’t actually that significant in terms of raw numbers, and is less than 10% of last winter’s high. We’ll be keeping an eye on Covid, especially if markets throughout the world remain under lockdown, and versions could cause more problems here. But, for the time being, the market appears unconcerned.
a drab roar Most occupations that need you to appear on live television in front of millions of people demand that you be entertaining. The position of Fed Chairman Jerome Powell is an exception to this rule. It is his job to be dull, and he is arguably rather effective at it. Another example was his testimony before the Senate Banking Committee on Thursday, when the Fed chair remained composed despite senators from both parties offering him advice on what the Fed should and shouldn’t do. As he talked, the 10-year Treasury rate remained stable at around 1.33 percent.
You can’t rule out T even if Powell maintains his dovishness./nRead More

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