Retal's Q3 Earnings Grab Attention

Market futures are down this morning following 8 and a half weeks of higher markets and new record closing highs in each of the 3 major indices. Profit-taking is a likely culprit, especially now that most of Q3 earnings season is behind us, with the Retail sector largely remaining to report. Retail is again expected to lag growth and positive earnings surprises we’ve seen in Tech, Energy and elsewhere this reporting term.

Some concerns from market participants regarding the viability of recent tax reform proposals and their likelihood of passage through Congress may also be weighing on trading sentiment this morning. Aside from a CBO analysis report released yesterday that the House tax reform bill, in its current form, would cost $1.7 trillion over the next year, or $200 billion more than what would be needed for Republicans to pass the bill without Democratic party assistance, according to current procedural rules in Congress.

Later today, we expect the release of the Senate’s version of the tax bill, which is already rumored to veer from the House version in that it would not fully repeal the estate tax (aka ‘death tax’). Unknown at this time is if any further changes have been made to state and local tax write-offs (SALT) or carried interest provisions. Hopefully today’s reveal will shed helpful light on these matters. But until it does, there is a sense that tax reform may go the way of other failed reform measures in Congress so far in 2017, specifically on immigration and healthcare.

Jobless Claims Remain Healthy

Despite continually working through distortions in the labor market related to Hurricanes Henry and Irma earlier this season, Initial Jobless Claims rose 10K last week to a still-healthy 239K from the previous week. Continuing claims, which had been dropping lower toward 1.8 million lately, went back up to 1.9 million last week, which is the exact 4-week moving average. The 4-week moving average of initial claims is a tad above 231K as of a week ago.

We’ll see hurricane distortions continue to wear off on both weekly jobless claims and monthly non-farm payroll numbers, and even still these figures currently illustrate an historically robust U.S. labor market — the strongest since the 1970s, when the workforce was much smaller. Keep in mind that baby boomers are beginning to retire at a faster rate, meaning new jobs will need to increase pace to keep up with this generational reality. So far, so good on this tack.

Q3 Reports for Retail Begin

Department store giant Macy’s Inc. (NYSE:M) posted mixed results for its Q3 report, topping estimates on earnings — 23 cents per share versus 19 cents expected, and also better than the 17 cents per share reported in the year-ago quarter — on revenues of $5.28 billion that fell short of the $5.31 billion the Zacks consensus was looking for, and down 6% year over year.

Full-year 2017 earnings guidance at Macy’s was reiterated, and the Zacks Rank #4 (Sell) stock before this latest earnings report is trading up 2% in today’s pre-market. Shares had fallen 50% year-to-date previously.

However, Kohl’s Corp. (NYSE:KSS) disappointed investors with a 2-cent miss in profits for its most recent quarter on sales that actually surpassed the Zacks consensus estimate: $4.33 billion ahead of the $4.30 billion we had expected. The company narrowed its full-year guidance range without raising the upside of $3.80 per share.

But Kohl’s shares are selling off in today’s overall bearish pre-market, down 8% already as the company has missed earnings estimates fore the first time in the last 4 quarters.