Review & Preview: Rainy Days and Mondays

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Wake Me When September Ends. The War in Iran and its impact on oil prices are once again weighing on the market’s mood to start the week on a drizzly New York Monday; expectations for more interest rate increases aren’t helping.

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The Dow Jones Industrial Average lost 0.7%, putting it on track for its worst September in three years. The S&P 500 and Nasdaq Composite didn’t fare much better, falling 0.8% and 0.9%, respectively.

President Donald Trump rejected Iran’s truce proposal last week, pushing up oil prices across the board. “A diplomatic settlement of the war would certainly help to bring down oil prices and interest rates,” notes Yardeni Research President Ed Yardeni. “However, [Trump]…intends to resume bombing Iran after the midterm elections if Iran doesn’t agree to dismantle its nuclear program. That means higher-for-longer oil prices, sticky inflation, and more central bank tightening.”

No wonder the market isn’t happy. To that last point, investors are expecting more interest rate hikes, potentially as soon as next month, which is sending Treasury yields higher.

“As bond yields move higher, fixed income becomes increasingly competitive with equities for investor capital,” writes Seema Shah, chief global strategist at Principal Asset Management. “Even if earnings remain strong, higher discount rates are likely to place greater pressure on valuations and contribute to more volatile market conditions.”

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Company

Last

Chg

Chg%

Dow Jones Industrial Average

51,481.51

-347.11

-0.67%

S&P 500 Index

7,683.69

-59.72

-0.77%

NASDAQ Composite Index

26,820.38

-248.34

-0.92%

Market Data as of

The Hot Stock: Palo Alto Networks, Inc. +4.6%
The Biggest Loser: Bloom Energy Corporation -9%

Best Sector: Consumer Staples +0.4%
Worst Sector: Utilities -1.7%

Created with Highcharts 9.0.1Monday, Sept. 28Index performanceSource: FactSetAs of Sept. 28, 4 p.m. ET

Created with Highcharts 9.0.1Sept. 28-1.4-1.2-1.0-0.8-0.6-0.4-0.20%Dow industrialsS&P 500Nasdaq Composite

Beauty or the Beast

The consumer takes center stage this week when it comes to economic data. Tomorrow brings the Consumer Confidence Index from the Conference Board, and the Bureau of Economic Analysis’s personal consumption expenditures price index will publish on Wednesday. But investors might be able to get an unofficial read on the economy by taking a closer look at how Target’s turnaround is resonating with shoppers.

After a post-pandemic nosedive, the company seems to be winning back customers after a merchandising overhaul from new chief executive Michael Fiddelke. The company has delivered strong earnings this year, as it slowly wins back consumers with new products and an improved in-store experience.

The transformation continues this month via Target’s store-within-a-store concept. The company ended its partnership with Ulta Beauty in August, and has been rolling out replacements in September in the form of its own in-house “Beauty Studio.” The revamped cosmetics and self-care sections will have more than 1,600 products from 90 brands.

Jefferies analyst Sydney Wagner visited one of the new Beauty Studios recently and noted that the “space closely resembles the former Ulta Beauty at Target shop-in-shop, with the most notable change a central display counter.” She was impressed that Target is leaning into Korean products, as they’ve established themselves as a dominant force in global beauty. (She isn’t terribly worried about Ulta, though: It’s still a powerhouse in K-beauty and has little overlap with Target products.)

Time will tell if Target’s turnaround can hold, and it’s hard to extrapolate shoppers’ broader mood from the company’s success; sales improvements reflect more of its own self-help efforts amid a murky consumer backdrop.

But it could be a sign that consumers are still willing to spend on companies competing for their dollars; shares are already up more than 60% this year. It’s hard to dismiss that by saying it’s lipstick on a pig.

The Calendar

AAR, CarMax, and Carnival report quarterly results tomorrow.

S&P Cotality releases its Case-Shiller National Home Price Index for July. Home prices rose 1.5% year-over-year in June, the thirteenth consecutive month home values increased at a slower pace than the rate of inflation. Among the twenty largest metro areas tracked, Chicago saw the largest gains at 6.9%, while Seattle was the weakest market, with a 2% decline.

The Bureau of Labor Statistics releases the Job Openings and Labor Turnover Survey. Consensus estimate is for 7.2 million job openings on the last business day of August, little changed from July.

The Conference Board releases its Consumer Confidence Index for September. The consensus call is for a 89.7 reading, slightly higher than in August, but still near the lows of the postpandemic period.

— Dan Lam

What We’re Reading Today

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