S&P 500; US Indexes Fundamental Daily Forecast – Bank Stocks Solid, but Retail Stocks Put a Cap on Upside

U.S. stocks are drifting lower on Tuesday as the euphoria over a possible peaceful solution between the United States and North Korea seems to have worn off. Investors are coming back to reality, reacting to a huge drop in retail stocks.

The SPDR S&P Retail ETF (XRT) was down 2.3 percent at the mid-session, mostly in reaction to three stocks:  Advance Auto Parts, Dick’s Sporting Goods and Home Depot. Advance Auto Parts posted weaker-than-expected earnings, triggering its worst one-day performance ever. Dick’s Sporting Goods also missed on earnings, triggering a 20% loss in its stock. Finally, Home Depot was a big drag on the Dow. It posted better-than-expected earnings and sales, however, its stock still fell 2.9 percent. Investors attributed the low to increased competition from Amazon.

The overall market indexes were being influenced by both bullish and bearish sectors, leading to the almost sideways price action. For example, Home Depot pressured the Dow, but Apple supported the blue chip average. Consumer staples stocks were good for the S&P 500, but telecommunication stocks were not.

Bank stocks continued to outperform the market this week due to better-than-expected economic data which helped drive up Treasury yields. When Treasury yields rise, banks tend to make more money.

In economic news, U.S. Retail Sales rose 0.6 percent in July, better than the expected 0.4 percent. Meanwhile, import prices rebounded after two straight months of declines, advancing 0.1 percent. The Empire State Manufacturing Index blew away the estimate with a 25.2 gain in August versus a 10.1 estimate and 9.8 previous read.

The solid retail sales data helped increase the chances for a Federal Reserve rate hike in December. According to the CME Group’s FedWatch tool, the chances of a rate hike jumped to 54 percent. On Monday, the indicator stood at 37 percent.

Although today is likely to be a down day based on the mid-session performance, the price action so far this week suggests that investors believe the economic expansion will continue and that the market will eventually overcome the geopolitical volatility.