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Aug 23, 2018

Markets I The Wall Street Journal

The Wall Street Journal.
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Welcome. I'm Ben Eisen from The Wall Street Journal, bringing you up to speed ahead of the market day.
Major U.S. stock indexes are hovering just below record highs, but a lot of traders are likely missing out. As vacation season rolls on, composite trading volume on Wednesday was the lowest of the year.
Today, we'll take a look at retail stocks, some of this year's surprise outperformers.

Markets in a Minute

Markets Data

Overnight Developments

Retailers Ride the Strong Economy

U.S. consumption is lifting shares of retailers
U.S. consumer sentiment is so strong that it's even boosting shares of left-for-dead retailers.
Target Corp.'s stock jumped 3.2% on Wednesday to its first record high since 2015 after the company reported that comparable store sales rose at the fastest pace in more than a decade. The retail chain's shares are up 32% this year, far surpassing the S&P 500's 7% rise.
"Like others, we're currently benefiting from a very strong consumer environment, perhaps the strongest I've seen in my career," said the company's chief executive, Brian Cornell, on the company's earnings call.
Not long ago, retail stocks were in free fall as investors worried that traditional retailers couldn't compete in the new world of e-commerce. Target shares dropped 9.7% last year even as the broader market surged, marking their third straight year of declines.
Though brick-and-mortar chains have struggled to transform themselves, they're being helped along by the increasing willingness of Americans to spend. Retail sales in July rose by 6.4% from a year earlier, data showed last week, suggesting that U.S. consumers are spending at a much faster pace than inflation as they benefit from a strong economy and tax cuts.
Stronger spending showed up at grocery stores, department stores, restaurants and clothing stores. Consumer confidence has generally remained high by historical standards.
Target isn't the only one benefiting. Macy's Inc. shares have added 49% this year, Kohl's Corp. has risen 46%, and TJX Cos. has gained 38%. The SPDR S&P Retail exchange-traded fund has tacked on 16% this year, including 5.5% in this month alone.
Still, for all their recent gains, traditional retailers continue to lag behind Amazon.com Inc., which has risen 63% in 2018 as it has scooped up e-commerce market share. A strong economy is helping retailers at the moment, but it won't solve all their challenges.
Are you buying retail stocks? Tell the author your thoughts at ben.eisen@wsj.com.

Market Facts

  • More than half of the 21 S&P 500 stocks that hit new 52-week highs on Wednesday were retailers, according to Bespoke Investment Group.
  • A record 28% of hedge funds owned shares of Facebook at the beginning of July, pushing their performance lower as the stock sold off later in the month, according to Goldman Sachs.
  • On this day in 1976, Vanguard launched First Index Investment Trust, the first retail index fund. As Fidelity Chairman Edward C. Johnson III said that day, “The name of the game is to do the best and I can’t conceive of investment managers not even trying to do better than average.”
The S&P 500 has tiptoed to a new bull market record, sort of. The S&P 500 has been in a “bull market” for 3,453 days, a day longer than the previous record bull market, according to S&P Dow Jones Indices. But the case isn’t quite closed yet.
At Jackson Hole, central bankers will focus on markets and monopolies. Fed Chairman Jerome Powell’s speech on Friday is the main event at the annual economic retreat in Jackson Hole, Wyo., running Thursday through Saturday.
The U.S. is seizing on Chinese economic vulnerability as trade talks begin. The world’s two largest economies kicked off two days of talks in Washington aimed at settling an escalating trade battle, with the U.S. claiming the advantage because Beijing is struggling to keep its growth from faltering.
A short squeeze is roiling Wall Street’s favorite bond trade. A robust August rally in the Treasury market is foiling one of Wall Street’s most popular trades, a bet that solid U.S. economic growth, rising inflation and eroding government finances will compel investors to sell bonds.
A messy battle is brewing in the options market. The CEO of the only U.S. options clearinghouse is clashing with traders, leaving his vision for the OCC mired in uncertainty.
Here’s why Michael Cohen agreed to plead guilty—and implicate the president. Prosecutors had reams of evidence and a long list of counts, which also could have included the lawyer’s wife. The moment Cohen stood up in court, he opened a new legal front for Trump that is fraught with peril.

What We've Heard on the Street

"Target’s success is partly due to a strong consumer economy: Rising wages and low unemployment are helping retailers across the board. But it is also a sign that the company’s $7 billion investment to revamp its business is paying off."
— Heard on the Street Columnist Elizabeth Winkler

Stocks to Watch

Nordstrom: The retailer said its board has authorized a share buyback program of up to $1.5 billion, with no expiration date.
Marathon Oil: With oil prices rebounding from recent declines, the stock has risen in five straight sessions, including a 3.3% advance Wednesday.
Williams-Sonoma: The home furnishings retailer said same-store sales grew more than analysts expected in the most recent quarter and gave upbeat full-year targets.
Synopsys: Synopsys exceeded Wall Street’s sales and profit projections last quarter, and the software design company raised its own targets for the rest of the year.