By Carlos Guillen
Equity markets are trading lower but making gains from the lows of the trading session as investors get pulled in all directions by better than expected weekly jobless claims, which strengthened the perception that tomorrow's jobs data will also surpass expectations and, consequently, give the Fed another green light for further tapering.
Quite encouraging before the opening bell was data that showed the number of people filing for unemployment benefits decreased, further giving credence to the perception that the overall employment backdrop is making small but consistent improvements. According to the Department of Labor, initial claims during the week ended January 4 totaled 330,000, decreasing from the 345,000 revised figure reported for the prior week and landing below the Street's estimate of 338,000. Also encouraging was that the initial claims' four-week moving average was 349,000, decreasing from the prior week's average of 358,750 and dipping below the 350,000 level that economists say is consistent with moderate labor market growth of about 150,000 net new jobs a month. While there still appears to be some distortion as a result of year-end holidays, it is now becoming less and less significant.
So far all the economic data points presented this week have been indicative of an improving economic backdrop. However, this appears to be a double edged sword for equity markets in the short-term, as signs of further improvement could give Federal Reserve policy makers confidence to continue reductions to their bond-buying program. As we saw in December, the Fed indicated that the strengthening employment backdrop served at evidence that the economy was sturdy enough to justify a small reduction in the Central Bank's bond-buying program that was originally intended to boost growth. So, as it stands, an improvement in jobs data to be presented tomorrow can certainly strengthen the case for further tapering.
At the moment, investors are awaiting the official unemployment figures to be released in less than 24 hours, and so far the expectations are for a better than forecasted result, which is supported by an upbeat report from Automatic Data Processing (NASDAQ:ADP) presented yesterday that showed that private employers created 238,000 jobs in December, exceeding economists' average forecast calling for a 203,000 increase. As it stands, economists are predicting that the government's numbers will show that private sector businesses added 198,000 jobs in December and that the unemployment rate likely declined from 7.1 to 7.0 percent. Of course, a much better than expected result tomorrow has the potential of sinking stocks as it can almost ensure that the Fed will initiate another round of bond-buying reductions; however, an improving economy should lift stocks in the longer term.
By David Urani
Retail stocks are leading the market lower, with the XRT retail ETF down 1.2% on the day so far. Today various retailers gave their monthly updates, as is customary, along with a handful of earnings results in the sector. Overall the results have been poor, and even among the companies that beat expectations, guidance fell short or was not given. The main culprits are a highly promotional retail environment and cold weather that also stretched into January.
We already got a concerning update from JC Penney (NYSE:JCP) yesterday, as they gave out a December update reiterating their Q4 expectations, but omitted any figure for comparable store sales which the Street translated as them hiding something. Prior to this JCP had been looking better, having posted a 10.1% comp increase for November. JCP stock is coming back some today, but hasn't recovered from yesterday's dive.
One of the biggest bombs today came from Bed Bath and Beyond (NASDAQ:BBBY), who reported Q4 earnings last night that fell $0.03 short on the bottom line. They also lowered their guidance for next quarter, and gross margin took a hit on couponing and mix shift.
Pier One (NYSE:PIR) is taking a similar nosedive after reporting that December comps were up just 1.3%, blaming the weather on a decline in traffic that continued into January. Consequentially, they significantly lowered their fiscal Q4 EPS estimates, to a range of $0.47-0.52 from their previous expectation of $0.60-0.66.
Family Dollar (NYSE:FDO) posted disappointing earnings and guidance, indicating a retraction in spending by the lower-income consumer. FDO missed by $0.01 on the bottom line, which included a 2.8% decrease in comparable store sales. The company also gave out FY14 EPS guidance of $3.25-3.55, which was well below the $3.98 consensus estimate.
Fred's (NASDAQ:FRED) posted a 1.4% increase in comps for December, which was below the 1.0% consensus. That came with Q4 guidance of earnings "flat to up modestly," versus a consensus of +10.5%. As a result they've decided to make a number of strategic changes to improve sales and generally improve business. The stock is being saved, however, by their announcement that they are 'exploring strategic opportunities,' which means they could be seeking buyers.
Some results in the teen apparel space include American Apparel (APP) getting crushed on a -6% comp; American Eagle (NYSE:AEO) up on a -7% comp as the Street was already expecting something terrible; and Urban Outfitters up as its +3% comp was a little shy of expectations but still pretty good considering the circumstances.
Even some of the companies that actually posted a good comp result went on to issue weak guidance:
Signet Jewelers (NYSE:SIG) was yet another retailer to post a disappointing print. They reported a +5% comp which isn't bad, but once again guidance was an issue, with their fiscal Q4 EPS estimate being ratcheted down to $2.12-2.16 from their previous expectation of $2.30-2.40. They noted weak traffic trends and a need to cut prices.
L Brands (NYSE:LB), owner of Victoria's Secret, reported a +2.0% comp which was above the +1.7% consensus, but they lowered guidance to approximately $1.60 per share for next quarter, down from $1.67 previously and the consensus estimate of $1.81. They note lower margins on promotional activity.
There were a couple of winners on the day, but optimism has to be limited because they were both companies that did not give any guidance:
Costco posted a decent comp of +3% versus expectations for 1.8%. They typically do not give guidance, but perhaps it's one stock you could give the benefit of the doubt to given its track record.
Stein Mart also posted a good comp of +4.5% against a +3.2% consensus. Management is "delighted," but as usual did not offer guidance.