Lower open seen after brutal retail sales, Libor bump
Small-cap stocks are expected to open lower in a correction off the big recovery rally from Thursday afternoon. Another rise in Libor rates, a dip in energy prices overnight and a weak retail sales report should counter gains in European and Asian stocks, which spurred a 1% rise in the World Index. Sellers could also be a little reluctant to pull the trigger into a two-day G-20 economic summit starting today in Washington. Stock index futures were down about 1.4% in after-hours trading, which would suggest a Russell 2000 (NYSE:IWM) open near 484.25.
Retail sales came in at minus 2.8%, which marked the largest October decline on record (the data series started 16 years ago). The consensus forecast called for a decline of 1.5%, but the “whisper” numbers were steadily getting worse this week, so it’s reasonable to think that a decline of at least 2% was already priced into the market. Investors were able to shrug off Thursday’s jolting weekly unemployment numbers, and there remains a sense from many market watchers that negative economic data right now just isn’t a surprise.
Ahead of the retail sales release this morning, there were already headwinds on the individual retailer front. JC Penney Company Inc. (NYSE:JCP) slightly topped the forecast but cautioned that economic conditions will remain difficult well into the New Year. Also, shares of Kohl’s Corp. (NYSE:KSS) and Nordstrom Inc. (NYSE:JWN) tumbled in extended hours trading Thursday afternoon after the firms reported weak profits and downgraded the outlook. Abercrombie & Fitch Co. (NYSE:ANF) beat the estimate, but slashed the forecast as well.
From a chart perspective, it should be noted that the rapid ascent Thursday afternoon basically creates a short-term support vacuum if the market falters today. Going into today’s action, look for support at 482, then a gap down to 467. On the upside, initial resistance is close by at 495, with the next test up at 505. Above there, the key failure zone near 514.50 will be an interesting test if the market catches fire again today.
