Daily Market Color

Weak Earnings from Retail Stocks Weigh on Risk Sentiment

So far today US stocks have reversed a large portion of yesterday’s gains, while Treasuries have rallied marginally after disappointing corporate earnings raised investor concern over the retail sector.  Walt Disney and Macy’s were the primary culprits, with Staples and Office Depot also playing a role in negative market sentiment after their proposed merger was called off over antitrust concerns.  Overall, corporate earnings in Q1 have largely exceeded expectations, with 75% of the firms that have released results beating profit estimates, and 54% surpassing sales projections.  Analysts currently expect an overall decline of first quarter profits of 7.4%, improved from the 9.5% decline they were forecasting back in early April.
Oil prices surged higher for the second straight day as worries of supply disruptions in Canada, Nigeria and Libya and an unexpected drop in US crude stockpiles supported prices.  The 3.4-million-barrel drop in crude inventories in the US was the first draw since March, widely missing the 714,000 increase analysts were expecting.  In a separate report today, the Energy Information Administration (EIA) said it expected Brent crude to recover to $76 per barrel by 2017, primarily driven by a continued increase in demand.  WTI and Brent crude are currently up 3.5% and 4.0% on the day, respectively.  

There are no significant data releases or scheduled Fed speakers today, so markets will continue to trade off of earnings, corporate and government supply, and commodities.  All three major US stock indexes are currently down anywhere from 0.33% to 0.75%, while Treasury yields and swap rates are 1-4 bps lower across the curve.

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