Market Insider Trader Talk with Bob Pisani


  Tuesday, 16 May 2017 | 11:42 AM ET

The oldest technical analysis service in the US says the bull market will continue

Posted ByBob Pisani
Customer Jacek Mroczkowski tosses bags of concrete mix into his truck at a Home Depot store in Washington.
Andrew Harrer | Bloomberg | Getty Images
Customer Jacek Mroczkowski tosses bags of concrete mix into his truck at a Home Depot store in Washington.

Tuesday's earnings from Home Depot and former retail darling TJX highlight two important trends: the do-it-yourself (DIY) business shows no sign of deteriorating and discounters like TJX and Ross Stores are no longer "safe havens" from the decline in retail store sales.

It's hard to describe how strong Home Depot's earnings and topline beat were, but consider this: U.S. same store sales were up 6 percent. This, for a company that is expected to have revenues of close to $100 billion in 2017. That is an amazing statistic. Most companies are struggling to get 2 percent growth, let alone 6 percent, let alone in the retail space.

They got there by selling more--average ticket was up 3.9 percent, and they got more people in the store: transactions were up 1.6 percent. Wow.

Home Depot is riding the perfect wave. Everything is aligning for them:

1) they are increasing market share;

2) spending on home improvement is growing;

3) home prices are appreciating;

4) Household formation is finally growing again.

These are just the fundamentals. Home Depot also has the advantage of being in that small group of large companies I call "buyback monsters," companies that have been decreasing their shares outstanding for year by buying back stock:

Home Depot: buyback monster

(shares outstanding)

2004: 2.3 billion

2010: 1.7 billion

2017: 1.3 billion

Home Depot cut its shares outstanding almost in half in the last 12 years. This means that—all other things being equal—Home Depot's earnings per share look almost 50 percent better than it would if they had the same shares in 2004.

Get it? Rising home prices + more households + more stock buybacks = Home Depot up 19 percent this year.

Sadly, such is not the case with discounters. A couple years ago, discounters were all the rage--TJX and Ross Stores were the saviors for store retailers. Other full-priced stores like Macy's and Nordstrom rushed to open off-price outlets.

Things change fast. Today TJX reported earnings slightly above expectations, but second quarter guidance was well below Street estimates. First quarter same store sales were up only 1 percent. Any company reporting a positive same store sales can hold its head high in this market—but this was still below expectations.

It's the same story elsewhere. Store sales in Nordstrom's off-price brand--Nordstrom Rack--were DOWN 0.9 percent year-over-year, even though ecommerce was strong. Saks Off-Fifth discount store also delivered a same store decline of 6.8 percent.

Bottom line: there's a few "safe" spaces left in retail: DIY (Home Depot, Lowe's Sherwin Williams), beauty (Ulta, Coty), but almost everything else—teen apparel, luxury, footwear, drugs and now the discount space—are under pressure.

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  Monday, 15 May 2017 | 4:48 PM ET

Trader Talk: The oldest technical analysis service in the U.S. says the bull market will continue

Posted ByBob Pisani
Andrew Harrer | Bloomberg | Getty Images

Stocks again hit historic highs today. Stocks have been strong because risk has been lower recently. Earnings guidance for the year has been strong. The global economy is improving. And the geopolitical risk from Europe is much lower.

Traders have been complaining about the low volatility, but that's historically not a problem for markets — stocks can do fine during periods of low volatility.

Why are the markets in such a tight trading range? It's simple. Right now stocks are relatively pricey, so buyers are only modestly enthusiastic about buying more — many would rather wait for prices to drop and then buy more. The sellers are not enthusiastic about selling because they see the better earnings and improving economy and worry that stocks could go much higher. The result? A tight trading range right at historic highs.

This is a perfect example of the law of supply and demand: Modestly higher demand coupled with little eagerness to sell (falling supply) means prices tend to drift upward in a tight range.

The master of this is Lowry's, the oldest technical analysis service in the United States, which has made supply and demand the cornerstone of its technical analysis for more than 70 years.

Here's what Lowry's said to clients this morning about the current market: "Bull markets accompanied by rising Demand and falling Supply historically carry a very low risk of failing."

What does carry a risk of failing? When traders start selling at an accelerating pace, and traders stop showing any interest in buying at lower prices. Lowry's said, for example, that this is what happened in 2007, when selling pressure began to trend higher in June 2007, about four months before the final market top in October 2007. Trader interest in buying also began dropping and was much lower by the time of the top in the market in October.

This is not what Lowry's is seeing now: Buying interest has been higher since November 2016, and selling pressure has been lower.

There are other positive indicators as well: Market breadth has been strong. Bull markets almost invariably end with increasingly selective buying interest. That is not happening: "[T]hese measures of market breadth suggest continued clear sailing ahead for the bull market."

Lowry's does note that another indicator — the number of stocks at 52-week highs — has been a bit weaker recently but says it has not yet reached a critical point.

Its conclusion: "[T]he probabilities still favor more months of bull market ahead."

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  Friday, 12 May 2017 | 1:47 PM ET

Retail is facing a historic moment of truth

Posted ByBob Pisani
Women try on shoes at a J.C. Penney store at the Gateway Shopping Center in the Brooklyn borough of New York.
Michael Nagle | Bloomberg | Getty Images
Women try on shoes at a J.C. Penney store at the Gateway Shopping Center in the Brooklyn borough of New York.

Analysts are not known for making bombastic comments, but this remark from Piper Jaffray Retail analyst Erinn E Murphy certainly has the ring of truth: "Q1 2017 Likely Marks A Historic Moment For North American Softlines."

A historic moment of truth? That's not too hyperbolic. Piper Jaffray believes Amazon "will have driven >100% of industry growth in Q1 by the time everything is tallied."

How is that even possible? Because Amazon is getting all of the incremental new business, and it's taking share away from everyone else. Even discounters may be showing cracks now.

It's not like the consumer isn't buying. I noted in my last post that retail sales grew better than 3 percent in 2016. But the shift in where they are buying is accelerating and has likely reached a tipping point.

April retail sales show that the trend toward online is very much intact, and the department stores continue to lose sales:

April Retail Sales

Dept. stores: down 3.7 percent
Online: up 11.9 percent
Restaurant/bars: up 3.9 percent
Furniture: up 3.8 percent

Notice that the trend toward going out to eat and drink is very much intact, as is furniture sales. No wonder Amazon is looking to expand into furniture.

J.C. Penney's CEO sounded the same note as Kohl's, saying: "We are pleased with our comp store sales for the combined March and April period, which improved significantly versus February."

He too reaffirmed full year earnings guidance for JCP at $0.40-$0.65. Never mind that's a pretty wide estimate: no one believes it anymore. Not with same store sales trends like these:

Retail same store sales

J.C. Penney: down 3.5 percent
Macy's: down 4.6 percent
Kohl's: down 2.7 percent
Nordstrom: down 0.8 percent

You combine rising inventories with traffic declines, and you have a big problem. Analysts have been cutting JCP yearly estimates for months, but it will likely be cut even more in the coming weeks:

J.C. Penney:
(Full-year estimates)

January 1: $0.66
Today: $0.48

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  Wednesday, 10 May 2017 | 7:00 AM ET

Retailers gird for the worst earnings season since 2008-2009

Posted ByBob Pisani
Pedestrians walk by Macy's flagship store in Herald Square in New York.
Getty Images
Pedestrians walk by Macy's flagship store in Herald Square in New York.

I recently called my old friend Ken Perkins for a preview on the earnings season for retailers, which starts in earnest Thursday with Macy's and Kohl's. Ken has been a retail consultant and analyst for many years as head of RetailMetrics.com. When I cheerfully asked, "Any signs of a bottom for these guys?," he said, "I don't see it" and then rattled off this depressing string of statistics:

  1. Of the 114 publicly traded retailers he follows, 26 (22%) are expected to lose money, the most since the 2008-2009 recession;
  2. 61% are expected to post lower year-over-year (YOY) earnings;
  3. 46% are expecting YOY revenue declines.

His glum evaluation: "This could be the worst performance for the retailers since the Great Recession."

Yikes! We all know retail is in upheaval, but something has happened in the last few months. We seem to have reached some kind of tipping point. Retailers big and small have been beset by a plague of problems:

  1. sales shifting to the internet;
  2. the proliferation of fast fashion outlets;
  3. the proliferation of private labels;
  4. the shift to "experiences" like travel and restaurants rather than buying apparel;
  5. the oversupply of retail outlets in general.

You might think that retail sales are collapsing, but they're not. The National Retail Federation estimates retail sales were up 3.8% in 2016. Internet Retailer, which analyzes online sales, has a similar figure. They estimate that e-commerce represented 13.3% of total retail sales in Q4 compared with 12.0% in Q4 of 2015. They factor out items not normally bought online, like automobiles, fuel, and bar and restaurant sales.

More important is the influence of Amazon. The total value of transactions from U.S. consumers on Amazon.com reached $147.0 billion in 2016, about $35 billion more than 2015 (these are estimates from Internet Retailer and ChannelAdvisor Corp.). They estimate that total online retail sales grew about $53 billion last year, to $394.8 billion from $341.7 billion in 2015.

That means that Amazon comprised 65.9% of the growth in U.S. online retail last year, and they separately estimate it was 27.4% of the increase in the total retail market.

Think about that. One company was a quarter of all growth in retail sales.

How do you compete against that?

In talking to retail traders, what I find most interesting is the almost universal belief that Amazon does not seem to care what it costs to be "top of mind," that is, they don't care how much they have to spend, they want you to think of them first. For everything. They want to be the place where you buy and the price to them is really secondary.

If that means being cheapest, or free delivery, or advertising, whatever top of mind means, they want to be that. They will make the investment in that relationship to be top of mind. Everything in retail is an outcome of that. Amazon is not very sensitive to margin. They are willing to spend anything to buy sales, and that crushes everyone below them.

To a certain extent, Wal-Mart is also willing to spend a lot to be top of mind to their clients.

What does this mean for other companies? Take Target--which is expected to do $70 billion in revenues in 2017, compared to an estimated $166 billion for Amazon, and nearly $500 billion for Wal-Mart. How do you compete when you are dealing with companies that have three to six times your revenues and are willing to do anything to increase sales? It's hard for Target--or Kroger, or anyone else--to keep up.

On top of that, add deflation, or bad weather--and it becomes tough to hit your numbers. There is no margin for error because of the pressure Amazon and Wal-Mart are putting on the business in terms of pricing and delivery.

So where does it end? It's not clear, but it doesn't end here. That's why I want to hear guidance from the retailers--full year guidance, not that it necessarily means too much because things are changing fast. There aren't many retailers who have a good sense of what their margins will be even a year from now, and certainly not five years from now.

But you can be sure some brave analysts are going to ask the One Big Question: does Amazon and Wal-Mart end up with all the business?

No. A number of retailers are holding up, including the home improvement group (Home Depot, Lowe's), the discounters (TJX, Ross Stores), select beauty companies (Ulta, E.L.F.), and a few specialty retailers that recently went public are also holding up well (Canada Goose, Floor & Decor).

But the overall trend is clear: if the whole industry is growing by $130 billion a year, Amazon is taking a huge chunk of that--more than a quarter. And they are taking market share from others.

What's it all mean? "In a free market economy, it's good to be the consumer, bad to be the retailer," Perkins concluded.

It also means that you can expect more mergers like Coach-Kate Spade deal, which makes sense in this context. Coach generates tremendous cash flow, but they have largely saturated North America. They can only grow by reinvesting cash flow into new businesses. There's not a lot of earnings growth, but the cash flow can be used to fund new businesses. The best strategy is to buy existing brands as cheap as possible and use their existing global reach marketing to expand.

And they are getting them cheaper. Soraya Benitez, retail analyst at Cougar Trading, noted that Kate Spade was bought at a multiple of 10 times trailing cash flow (EBIDTA), but the stock has traded at 15 x EBIDTA in the past. "There's a massive valuation reset going on," she noted.

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  Monday, 8 May 2017 | 1:16 PM ET

Stop worrying—stocks are pricey for good reasons

Posted ByBob Pisani

Is the stock market priced for perfection? It sure is, but with these data points it makes sense for stocks to be pricey:

  1. Geopolitics: lower risk, now that the French election is over.
  2. Earnings: above expectations for both Europe and the U.S., and full-year guidance has been strong.
  3. U.S. economy: With April's strong jobs report, it's looking likely that the first quarter's weak numbers are (once again) an anomaly, and the Fed is looking more prescient by calling that Q1 data "transitory."
  4. Federal Reserve: The economic data is good, but not too good. The Fed is essentially out of the picture. Traders are expecting two rate hikes and nothing that has happened recently has changed that view.
  5. Tax cuts: are now in play.

This is a rare confluence of events — lower risk right across the board. It's not surprising that world markets are at new highs:

Global stock markets

U.S.: historic high
Germany: historic high
France: multiyear high
Japan: 16-month high
Emerging markets (EEM): 23-month high

Is the U.S. market expensive? Sure, by historic standards. Stocks have a very good correlation with forward earnings estimates. According to FactSet, the forward P/E estimate for the S&P 500 — which includes the last eight months of this year and the first four months of 2018 — is 17.5 (2,396/$137.04 = 17.5). The 20-year average is 16.0, so the current estimate is above average, but not dramatically so.

It's also not surprising that with these kinds of data points we are getting markets at new highs, but traders are whining about the low volume and low volatility. Again, this is not shocking: prices are too high to make buyers enthusiastic, but sellers are not enthusiastic either because everyone believes that a modest drop in the market will only be met with more buying.

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  Friday, 5 May 2017 | 4:43 PM ET

Trader Talk: Can the French election put U.S. markets at new highs?

Posted ByKirsten Chang
A woman looks at electoral posters of French presidential election for the En Marche ! (Onwards !) movement Emmanuel Macron and President of the National National Front (FN) Marine Le Pen, candidates for the French presidential election on May 04, 2017 in Paris, France.
Chesnot | Getty Images
A woman looks at electoral posters of French presidential election for the En Marche ! (Onwards !) movement Emmanuel Macron and President of the National National Front (FN) Marine Le Pen, candidates for the French presidential election on May 04, 2017 in Paris, France.

The S&P 500 hit an historic high on a confluence of near-perfect market events.

I've written recently about the near-Goldilocks state of the stock market:

Geopolitics: The French elections on Sunday have led to a relief rally. Germany closed at a historic high again today. France closed at the highest level since 2008. But the most important factor in the rally has been earnings: European markets are higher on a combination of better economic growth and policy support. Emerging markets are also higher, for similar reasons. The percentage of countries that have seen their forward earnings estimates rise over the past three months is at its highest levels since 2009, according to Keith Lerner, Chief Market Strategist at SunTrust Advisory Services.

Earnings: U.S. company guidance for 2017 is holding up well, with the exception of oil stocks, which has been slipping as oil has dropped below $50. Half of the S&P 500 companies have seen their earnings estimates raised by analysts, the highest level since 2015, Lerner said.

U.S. economy: Today's April jobs report was a big relief for the bulls. One risk to stocks was the poor performance of the U.S. economy, which managed to generate a miserly 0.7 percent GDP growth. Traders believed that the numbers would improve in Q2, and today's numbers went a long way toward proving that assumption is correct.

Federal Reserve: Today's employment report supports the Fed's thesis that the soft patch in Q1 was "transitory," in the Fed's words. The data is good, but not too good. The Fed is essentially out of the picture. Traders are expecting two rate hikes, and nothing that has happened recently has changed that view.

Tax cuts: They are now in play.

What's this all mean? We were locked in an absurdly tight trading range for the past two weeks, just below the historic closing high of 2,395 on the S&P 500.

It means, in the words of one witty trader, that flat was the new up.

But not any more.

This was one of those rare weekends when it pays to go long into the close.

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About Trader Talk

  • Direct from the floor of the NYSE, Trader Talk with Bob Pisani provides a dynamic look at the reasons for the day’s actions on Wall Street. If you want to go beyond the latest numbers— Bob will tell you why the market does what it does and what it means for the next day’s trading.


  • Bob Pisani

    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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