Yahoo Finance S&P 2040, Apple/Beats threatens Pandora & Lulu lowers outlook: What to watch
Here are three things to watch in Thursday's trade...
Number 1:
The stock market has shown it can absorb plenty of worry. But for the moment, it appears the abundance of unwelcome news remains a bit too much for a market near all-time highs to ingest without lying down for a while.
The S&P 500 (^GSPC) is again ready to dip back into the red for the year, and at this hour has also disgorged all the upside that followed the Federal Reserve’s gentle message of last week.
Soggy economic data in the States is running into a Fed that at least for now is staying on message about being open to lifting interest rates in coming months. Markets, at last, seem to be hearing the Fed’s meaning: If you’re wishing for the Fed to keep rates at zero, it means you’re wishing for the first-quarter soft patch in growth to drag on.
This would be fine – and ultimately probably will be fine – if world markets weren’t already dealing with the tightening of financial conditions that’s come with a stronger dollar. Emerging-markets are squeezed, as are American corporate profits.
And, of course, when markets start to sell off hard, there are always plenty of ready excuses to help tell us the story of “Why?”
Greece remains on the brink of being broke, the Saudis bombed Yemen and another plane went down under confusing circumstances. If these were the true drivers of the pullback, you’d want to buy it, because such scary geopolitical events and long-running sovereign standoffs are rarely long-lasting
Far more fundamentally, corporate earnings forecasts have been steadily dropping, making stocks appear more expensive even as they haven’t gone up. As noted here Monday, all of this comes as most big companies are in a pre-earnings “blackout period” in which they aren’t allowed to buy their own shares.
With it all, though, this year’s pattern continues to match up pretty well with last year’s. Both times we entered the year on a new high, tumbled in January, rebounded in February, feared a less generous Fed and dealt with a surprisingly weak, and cold, first-quarter for growth. On this day a year ago, the S&P was toggling around the flat line year to date, same as now.
If the early weakness persists, many will be watching the 2040 level on the S&P 500, down about 1% from Wednesday’s close. In that general vicinity, the rally line from the October low gets tested.
Bulls should hope for a spasm of panic should we break it, which in recent years has meant the selling was most of the way through.
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Number 2:
Now comes the hard part for Lululemon (LULU) – and its investors.
The yoga chain reported a pretty good quarter this morning, beating profit forecasts and showing healthy same-store sales growth. But the yoga-wear outfit tamped down expectations for the current period with guidance that fell far below Street estimates.
Investors have been betting in recent months that Lulu had put its PR and merchandising missteps behind it, bidding the shares up 80% from June through February. And, for sure, the company’s broader merchandise line and gentler customer service policies have paid off.
But inventories look heavy based on online clearance sales, and the company reminded the Street that it is in reset mode this year. The stock, poised to continue its backsliding trend that’s lasted all month, needs to find a new level that reflects a mixed outlook rather than some idea that Lulu had returned to its former glory.
Number 3:
Pandora (P) has never lacked for competitors in the music industry or doubters on Wall Street. Expect more of both now.
Apple (AAPL) is reported to be readying a new subscription-music service using its Beats division, says the New York Times. Amazon (AMZN) also upgraded its streaming-music offering this week.
While Spotify is perhaps the most direct target of Apple’s move, Pandora – which offers ad-supported and subscription online music streaming – will be pressured as well if the service is a hit.
The problem all along has been that Pandora doesn’t price its service to be all that profitable at current scale. Apple and Amazon can afford to offer more for less to music lovers. Does Pandora have an answer for that?
