Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.
Stocks sold off in the late afternoon for the third day in a row today as investors were spooked by the minutes of the Federal Reserve Open Market Committee's latest meeting. As a result, the Dow Jones Industrial Average (^DJI -0.11%) and S&P 500 both closed down 0.4%.
What seemed to throw investors off in the Fed's notes was the following line: "Many members stressed the data-dependent nature of the current asset purchase program, and some pointed out that, if economic conditions warranted, the Committee could decide to slow the pace of purchase at one of its next few meetings."
Reading the Fed's tea leaves has proven a fool's errand in the past, and it seems a little ridiculous for the market to fear a taper in the "next few meetings," which could be four months from now or even later. Still, the Fed's loose monetary policy has been a major reason for the stock market's jump this year, as it's kept down bond rates and boosted the economy. The Fed's next meeting will take place on Dec. 17-18.
Recent economic reports have been mostly positive and today was no exception as retail sales, excluding automobiles, increased 0.4% in October, beating expectations of 0.1%, while the Consumer Price Index was essentially flat, helped by falling gas prices, an encouraging sign for spending.
The drumbeat of retailer earnings reports continued today as J.C. Penney (JCPN.Q) jumped 8.4% after a promising earnings report. After several terrible quarters, the department-store chain seems to finally be recovering, reporting same-stores up 0.9% in October. Results were still ugly with a 5.1% drop in sales and a loss of $1.81 per share, but the ship now seems headed in the right direction at least. CEO Myron Ullman was optimistic about the future, saying he expected sequential and year-over-year improvements in comparable sales and gross margin in the fourth quarter.
Home-improvement retailer Lowe's (LOW -1.40%) wasn't as lucky as its shares fell 6.2% on a weaker-than-expected outlook. Overall, it was a strong report for the Home Depot rival as same-store sales grew 6.2%, and earnings per share jumped 34.3% to $0.47, but that missed the Street's expectations of $0.48. Lowe's also raised its full-year EPS guidance to $2.15 from $2.10, but that was below the analyst mark at $2.19. The housing sector has boomed this year, lifting retailers and homebuilders alike, and Lowe's shares are still up 30% year to date. Today's drop seems to be more of a valuation-based correction rather than a long-term sign.
Finally, Staples (SPLS) shares were off 1.6% today after its own earnings report failed to impress. The nation's leading office-supplies retailer warned of negative trends in demand for core office supplies, which shouldn't be surprising given the secular shift to digital communication. Management intends to focus on other categories, but that seems like a questionable strategy given its strength in office products. Earnings per share of $0.42 matched expectations, but revenue fell 3.8% to $6.11 billion, below the consensus at $6.18 billion. Given the fading relevance of office retail and the consistent emptiness of these stores, I'd avoid this sector.
