The U.S. Fed may have given us that last little push to get the economy moving, essentially saying that they are willing to backstop the U.S. economy should anything go wrong in the recovery which could very well entice companies to begin to finally hire and push projects forward. A pro-business president would help in that process, but we are forced to work within the current state of affairs and it appears to us at least that we are already on the path to recovery with green shoots all over. Housing is recovering with retail also showing strength and retail beginning to see sales, margins and profits increase.
It sure feels like many of the recoveries we have been through, and were it not for the jobs situation and all the political noise, then maybe more people would be able to recognize this.
We have our first set of economic news out today, and it is as follows (data set - consensus):
- Initial Claims - 365k
- Continuing Claims - 3298k
- FHFA Housing Price Index - N/A
- New Home Sales - 368k
Looking at Asian markets we see markets are higher:
- All Ordinaries - up 0.19%
- Shanghai Composite - up 0.25%
- Nikkei 225 - up 0.51%
- NZSE 50 - up 0.14%
- Seoul Composite - up 0.38%
In Europe markets are mostly higher:
- CAC 40 - up 0.22%
- DAX - up 0.19%
- FTSE 100 - up 0.40%
- OSE - down 0.75%
Over the past few years we have watched as both Verizon (VZ) and AT&T (T) has positioned themselves as premium brands in the cellular market. Left in the wake of those two merger machines are the likes of Sprint (S), Leap Wireless (LEAP) and MetroPCS (PCS), which appear primed for a price war in the unlimited data plan segment of the business.
These three have seen their businesses pick up in recent quarters for a myriad of reasons, but mostly due to the industry as a whole consolidating their market positions and no one initiating a price war. That period seems over as T-Mobile cut their unlimited plan pricing yesterday. This will impact all the wireless plays from Sprint on down the food chain, and those at the lower end far more than those at the top. This is why we saw Leap fall $0.52 (8.07%) to close at $5.92/share on volume of 3.6 million shares and MetroPCS fall $0.44 (4.33%) to close at $9.71/share on volume of 10 million shares. One situation which has caught our attention is how this shall affect Sprint's ability and/or willingness to conduct mergers moving forward. We have not yet arrived at a conclusion for how we think that will play out, but we did want to mention it this morning so readers know we are addressing it. With that said though, we would not be buying companies in hopes that they are buyout targets of others as that is a suckers game almost every time.
It is our opinion that the economy is getting better and not worse, with the consumer beginning to come around after having been absent in many cases over the past few years. American Eagle Outfitters (AEO) helped confirm that with their quarterly announcement as they raised their outlook for the rest of the year and continue to cut back on inventories and improve merchandising. The stock hit a new 52-week high as shares rose $1.30 (6.24%) to close at $22.13/share on volume of 12.6 million. We believe that retailers who are actually performing right now will have good second halves of the year and would look to buy Gap and American Eagle if one wanted exposure to the teen and young adult markets.
Within the general retail sector, we want to focus on those who have exposure to home furnishings and décor. Williams-Sonoma (WSM) demonstrated yesterday just how good the market is here and confirmed that a recovery is indeed underway for these stocks. The company reported a good second quarter and believes they will also finish out the year strongly, which helped push up shares by $4.45 to finish the session at $42.68/share on big volume of 7.8 million shares. This brings up Bed, Bath & Beyond (BBBY) which was crushed last quarter after disappointing results but which we think will have a much better second half of the year now that estimates and expectations have been adjusted. Earnings are September 17th and based on what we have seen from others in the space, we would expect a surprise and for the stock to rise. By the end of the year we fully expect to see the shares testing 52-week highs again.