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Trouble in store for US stocks

Sales figures from J C Penney contradicted buoyant retail sales figures for April

Clothes rack
J C Penney's trading update capped a gloomy week for the old school retailers

Closing index values

Dow Jones -185 (-1.1%) at 17,535.32

Nasdaq Composite -20 (-0.4%) at 4,718

S&P 500 -18 (-0.9%) at 2,047

S&P 400 -13 (0.9%) at 1,441

Russell 2,00 -6 (-0.6%) at 1,102


Mid-session

Stocks remain entrenched in the red, despite some favorable signs from the retail sector.

Retail sales were up 1.3% in April from the previous month, comfortably ahead of the 0.8% increase economists had been predicting.

Meanwhile, the US University of Michigan consumer confidence measure for May jumped to 95.8 from 89.0, well above the consensus forecast of 89.5, to register the biggest single month gain gain since 2006.

Nonetheless, the S&P 500 remained in negative territory, down seven points at 2,057, with energy stocks weighing heavily on the index, as the price of oil headed south.

West Texas intermediate for June delivery was 61 cents cheaper on the day at $46.08 a barrel.

The mid-cap benchmark, the S&P 400, dared even worse, slipping seven points to 1,447. The Russell 2,000 index, which tracks small-caps, was down by just over a point to 1,107.

Medical technology company ConforMIS, Inc (NASDAQ:CFMS) was the worst performer on Nasdaq, despite showing strong revenue growth in its first quarter trading update.

Total revenue of $20.3mln was up 40% on a constant currency basis. However, the company lowered full-year revenue guidance to $76mln-$81mln from the previous range of $84-87mln.

The revenue downgrade coincided with news that president and chief executive officer Philipp Lang is to give up the roles as soon as a successor can be found.

Investors splashed out on WaferGen Bio-systems, Inc (NASDAQ:WGBS) as it succumbed to a bid approach from Takara Bio Inc. The shares shot up by two-thirds to $0.9198.


Open

Blue-chips opened lower, albeit not as sharply as feared, as investors welcomed some encouraging economic data.

As well as the retail sales figures (see market preview, below), the US University of Michigan consumer confidence measure for May jumped to 95.8 from 89.0, well above the consensus forecast of 89.5, to register the biggest single month gain gain since 2006.

“This all bodes well for consumer spending in 2Q16, particularly after the stronger than expected April retail sales report. While many at the Fed are keen to tighten monetary policy further we still feel that June is perhaps a little too early given the softness in data seen earlier in the year. We instead continue to favour a 3Q rate hike,” said James Knightly at ING Bank Financial Markets.

After almost an hour of trading the S&P 500 was down four points, or 0.2%, at 2,060.

The S&P 400, which measures the performance of mid-caps, fared less well, shedding five points (0.4%) at 1,448.

The Russell 2,000 index, which is focused on small caps, fell three points (0.3%) to 1,105.

On the NYSE, Evolent Health Inc (NYSE:EVH) class A shares were the best performers, up 19% at $12.75.

The company, which provides an integrated value-based care platform to the nation's leading health systems and physician organizations, has gone into partnership with Georgia Physicians for Accountable Care (GPAC).

The partnership will guide the development and execution of a value-based care strategy for improving patient health in Georgia, Evolent said.

Bottom of the pile having shed just over a third of its value was EXCO Resources Inc (NYSE:XCO), the oil and natural gas company that has formed a special committee to look at its strategic options.

The committee will evaluate various strategic and restructuring alternatives, including exchanges of existing indebtedness for common stock (including privately negotiated exchanges), the renegotiation or repurchase of existing indebtedness, the issuance of equity, divestitures of assets, the issuance of additional indebtedness, in court and/or out of court restructurings, and the restructuring of its gathering, transportation and certain other contracts.


Market preview

Stocks are set to open lower, despite better than expected retail sales for April.

Sales were up 1.3% from the previous month, comfortably ahead of the 0.8% increase economists had been predicting.

“It looks a decent report throughout with 11 of the 13 major categories reporting growth. Autos were up 3.2%, gasoline stations sales up 2.2% while the non-store category (largely internet) saw sales rise 2.1%. Building materials saw sales fall 1% MoM [month-on-month], but it has had a strong run of late with the YoY [year-on-year] growth looking healthy at +5.5%,” noted Dutch finance house ING.

“This report is likely to generate some encouraging headlines suggesting a bounce back in consumer activity, and it certainly is good news; however, the Federal Reserve will want to make sure it isn’t just a one-off,” ING reckoned.

Elsewhere on the retail front, J C Penney Company Inc (NYSE:JCP) capped a miserable week for big name retailers with a surprise fall in revenue in the first quarter of the year.

Shares plunged 9% as it posted a net loss of $68mln, though this was an improvement on the $150mln loss in the same quarter of 2015.

English football club Manchester United PLC (NYSE:MANU) expects to generate between £500-510mln of revenue for the full year, and forecasts earning of £178-188mln.

Third quarter results for the three months ended March 31 2016 reveal £44.9mln of earnings (adjusted EBITDA), up 76.8%, and a 29.9% rise in revenue to £123.4mln.

After a mixed showing yesterday, the S&P 500 is expected to open around six points lower at 2,058 while the Dow Jones is tipped to slide 55 points or so to 17,665.

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