Stocks rose Wednesday with the Dow up 264 points, or 1%, at the open. The S&P 500 traded 0.9% higher, and the Nasdaq gained 1.1%.
Stocks jumped as strong quarterly results from two big retailers boosted investor sentiment. First up, Target shares were up as much as 19% with a new all-time high Wednesday morning after the retailer crushed earnings expectations and raised its full-year outlook. Target’s quarterly profit jumped 17% as its in-store pickup and same-day shipping services drew in more customers. Sales grew 3.4% in the quarter, and same-day fulfillment services contributed nearly 1.5 percentage points to Target’s overall same-store sales growth. Target CEO Brian Cornell told analysts that the company’s new pick-up and same-day delivery “options offer speed, convenience and reliability. And as a result, they’re quickly becoming the fulfillment choices for our guests. And most importantly, because these options leverage our existing in-store infrastructure, technology and teams, same-day fulfillment delivers outstanding financial performance as well.”
Lowe’s delivered a beat as well, reporting adjusted quarterly profit of $2.15 per share, $0.14 higher than analysts expected. Shares of the DIY home improvement store are currently up just over 10%. Oppenheimer retail analyst Brian Nagel says this could be a turning point for the stock. Nagel sees “big turnaround potential” for Lowe’s after it has “lagged for years,” and says the stock could jump as high as $180 in a perfect scenario, though his official price target is $135. “It seems under the guidance of the new CEO, Lowe’s is getting its act together,” Nagel said. “And frankly, if we’re right here and this continues, this stock has a long way to run.”
Minutes from the Federal Reserve’s July Meeting are out at 2:00pm Eastern Time. Events that have happened since may make those minutes seem a little stale, but Fed watchers will be as eager as ever to try to glean fresh monetary clues. More eyes will be on what Fed Chair Jerome Powell says in his speech on Friday at the Jackson Hole symposium. Other than President Trump’s demands to cut rates by 100 basis points, the market will be listening for any hint in Powell’s speech about what might turn July’s “mid-cycle adjustment” into a new easing cycle as traders are currently pricing in between 50 to 75 basis points of cuts by the end of this year. They may be in for disappointment as Boston Fed President Eric Rosengren, who dissented in July, is still pushing back on any easing. San Francisco Fed President Mary Daly believes we’re on the path to worrying ourselves into a new recession. Daly wrote in a post on Quora.com that while she sees “solid domestic momentum that points to a continued economic expansion,” she also notes that “considerable headwinds, like weaker global growth and trade uncertainties, have emerged – and they’re contributing to this fear we see in the markets that a downturn is right around the corner. So one thing I’m looking closely at is whether the mood gets so out of sync with the data that the fear of recession becomes a self-fulfilling prophecy.”
One of those data points is the U.S. consumer, which Bank of America CEO Brian Moynihan says—and the earnings results of Target and Lowe’s this morning suggest—is doing just fine and is strong enough to keep the economy growing. “The underlying consumer is doing well and making more money. More importantly, they’re spending more money,” Moynihan said, noting the bank’s consumer base has spent around $2 trillion so far this year. “The U.S. consumer continues to spend and that will keep the U.S. economy in good shape.” But on the flip side, permabear David Rosenberg of Gluskin Sheff warns that that the U.S. consumer is in a danger zone. “What no one seems to talk about is the underlying fundamentals behind the consumer are actually deteriorating before our very eyes,” he said. Rosenberg criticized the government’s latest retail report, and said that the bullish retail number was financed by credit, and is therefore unsustainable. “The pundits on bubble vision seem to make their living staring at the hood instead of checking out the engine … which is sputtering from a real income perspective. Spending in the consumer space will converge in due time, don’t doubt that for a second.”
In other economy news, the nonpartisan Congressional Budget Office said in a report released this morning that Federal deficits are expected to swell to higher levels over the next decade than previously expected. According to the CBO, the U.S. budget deficit is expected to hit $960 billion in 2019, and average a whopping $1.2 trillion per year between 2020 and 2029. The CBO also projects Trump’s tariffs will shrink gross domestic product by 2020 and warned that further hikes could stifle economic growth. This is in contrast to Trump’s own statement on Twitter this morning that the “only problem” the economy has is the Fed led by Jerome Powell, who the President compared to a “golfer who can’t putt.”
Stocks We’re Watching
Cheetah Mobile (NYSE: CMCM): Shares of Cheetah Mobile jumped more than 30% yesterday after the Chinese mobile internet tools company announced its Q2 results and announced a large special dividend. While Cheetah’s quarterly revenue fell -12.1% year-over-year, with a -44% decline in revenue from utility products and services, that was almost completely offset by a combination of nearly 50% growth from its mobile entertainment segment and sales hat more than tripled from artificial intelligence and other products. As for that special dividend, Cheetah’s board approved a cash dividend of $0.50 per ADS, to be paid on September 30 to shareholders of record at the close of business on September 13.
Vivus Inc (NASDAQ: VVUS): Shares of this small specialty pharma company have jumped nearly 15% this week after it reported positive data from a pilot clinical study of its weight-loss drug, Qsymia. Results from this study showed that patients who were administered Qsymia before and after laparoscopic sleeve gastrectomy via continuous intravenous infusion lost more weight and had a greater probability of achieving a body mass index (BMI) of less than 40 compared with patients undergoing the surgery along without the anti-obesity medication.