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Which Is Most Important?

Nick Kalivas

The fiscal saga goes on in Washington.  Reading the wires, it seems the political standoff between the Democrats and Republicans has not worsened overnight with a few stories about new debt ceiling legislation floating around; however, resolution is still a long road.  The 1 month T-bill yield was quoted at 29 bps at writing down from 35 bps yesterday.  Default risk premium has eased somewhat.

There were a number of potentially market moving events overnight which would normally find more attention if there was no fiscal crisis.  Here are a few items to chew on:

1) It looks like Janet Yellen will be nominated for Fed Chair.  The move is not a surprise, and argues for the status quo on monetary policy.   However, it does show the Administration finally trying to inject some stability into the financial markets.

2) Profit news in the consumer sector is mostly cool.  Costco (COST) reported earnings short of estimate at $1.40/share against a forecast of $1.46/share.  FX and gasoline were a headwind to same store sales growth. Family Dollar (FDO) guided down for its coming quarter projecting EPS of $0.65 to $0.75 against an estimate of $0.76.  Del Frisco’s Restaurant (DFRG) reported weak results.  Likewise, YUM Brands (YUM) continues to struggle in China. Beyond the profits, Men’s Wearhouse (MW) is being courted by Jos A Bank (JOSB) for $48/share.  MW closed just above $35 Tuesday and appears to be rejecting the offer.

3) The industrial sector looks generally solid.  Along with reporting stronger than expected result, Alcoa (AA) is raising its outlook for the heavy truck market due to improved conditions in Europe and China.  RPM International (RPM) posted a strong profit on 9.1% organic growth.  It noted improvement in Europe and its roofing business.   It also suggested momentum in all aspects of its consumer segment.  This is offset by a profit and revenue short fall at Fastenal (FAST).

4) Knight Trucking (KNX) guided its outlook lower for Q3 and Q4.  The company noted slow volumes early in the quarter, but highlighted regulatory burden and a shortage of drivers as cost factors.   The driver shortage is an interesting footnote.  Weakness in the sector is not a surprise given peer warnings earlier.

5) Monthly sales data from semiconductor foundries United Micro (UMC) and Advanced Semiconductor (ASX) were healthy up 14.9% y/y and 19.5% y/y respectively.  

6) The VIX is approaching one year highs at 21.91 and 23.23.  These levels may provide some support to stock prices on a technical and fear basis.

RTI Question:  Pretended Washington is a non-factor for the momentum: Which of these factors grab your attention as most important to stock market pricing? Let me know your thoughts below:
Read the analyst report on COST

Read the analyst report on FDO

Read the analyst report on YUM

Read the analyst report on JOSB

Read the analyst report on MW

Read the analyst report on DFGR

Read the analyst report on DFRG

Read the analyst report on ASX

Read the analyst report on UMC

Read the analyst report on FAST

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