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It's understandable that Macy's stock is getting hit hard, down roughly 13 percent on its poor guidance, but a lot of traders are scratching their heads over the big declines in luxury names: Kate Spade, Ralph Lauren, Fossil, Michael Kors, and Coach all down 4 to 5 percent.
The simple answer is, they all sell to Macy's and other big-box retailers, and Macy's isn't the only problem.
Macy's keeps its margins up by pushing back on the vendors they buy from—they say, "We can't sell your stuff, we want a discount on the stuff we bought from you." And that's what happens: the vendors have to take a hit on the money they are going to get.
There's a double whammy: not only does Macy's get a discount on the stuff they already have, they also adjust future orders lower.
The key numbers to look at for Macy's is the spread between inventories and sales. It's getting wider, and that's not good.
It was good a year ago, but it's been deteriorating since then:
Q4 2014: Inventory down 1%, Sales up 2% (good!)
Q1: Inventory up 2.7% Sales down 0.7% (bad)
Q2: Inventory up 3.8% Sales down 2.6% (getting worse!)
Q3: Inventory up 4.6% Sales down 5% (yikes! panic!)
So now we hit Q4, and guess what's going to happen? Macy's has a huge pile of inventory it has to clear.
That's why CEO Terry Lundgren came on CNBC Wednesday morning and said, "Consumers are going to have a field day," because of the markdowns they will have to take.
And they are not alone. We may get equally bad news from Kohl's, reporting tomorrow. Sales have been sluggish as well, and inventories are also rising. They have other issues: they are losing share to JC Penney, they have no strong internet presence, and not much in the way of aspirational brands.
We all know, of course, that the consumer is not completely falling apart. They are buying stuff, they are just not buying Macy's stuff, or other retailers. They're buying homes, cars, travel and experiences (theme parks, plays, movies, sporting events), and electronic goods.
And much of what they are buying, they are buying online. Two years ago, David Berman of Durban Capital introduced the concept of "SAA" (Samsung, Apple and Amazon), that consumers are spending on devices and using those devices to buy rather than go to the mall.
It's a concept that has clearly caught on. He was on our air yesterday and noted that inventories were indeed building at traditional retailers and that internet shopping was accelerating. He noted that traditional retail sales were up about 3.1 percent in Q3, while sales of Samsung, Apple, and Amazon were up 20.8%, with total sales up about 5.2 percent. In other words, much of the incremental growth is coming from online.
"There is a complete structural change in retail," Berman noted. Another point: because people are spending less time in malls, there is less impulse buying, which was a major help to retailers.
It's not all bad news. Fast retailers like H&M, Zara's, and Forever 21 are taking market share away from the old-school retailers.
Still, Berman was not optimistic on most of the names he covers: "Earnings are going to come down more than people expect."
Stocks are experiencing their weakest day in over a month, with 6 stocks declining for every 1 advancing. The CBOE Volatility Index, up 15 to 16 percent and change, is experiencing its first double-digit gain since the end of September.
Several factors have come into play:
1) Much of the decline is attributable to continuing fallout from the strong jobs report and the increasing likelihood the Fed will raise rates in December. Interest rate sensitive groups like REITs, emerging markets and home construction are down roughly 2 percent, though utilities which were hit hard last week, are down only fractionally.
The head of the San Francisco Fed, John Williams, said over the weekend there were good reasons for the Fed to begin raising rates, though he said the data would dictate "when."
2) Stocks are relatively expensive after a six-week rally. Forward P/Es are relatively high: at current estimates of $118.62 for earnings for the S&P 500, the full-year P/E is 17.5, well above the 10-year average of 14.2, according to Factset.
For the fourth quarter, earnings expectations are also declining at a rate greater than Q3.
3) Commodity prices—particularly oil and copper—are continuing to indicate oversupply and slower global growth. Copper remains near the lowest level since 2009; oil is near the bottom of its 2-month range. Speaking of slower growth, overnight China reported that exports in October fell for the fourth consecutive month.
4) Department stores are notably weak, with many off 4 to 5 percent. They will all begin reporting this week: Macy's Wednesday, Kohl's and Nordstrom Thursday, and JC Penney Friday. Earnings estimates are coming down for the group. Citigroup lowered forecasts for Macy's and Kohl's Monday.
Where's the action? Traders on the NYSE floor—and those on sell-side desks around the city—are disappointed at the market's reaction.
The biggest jobs report surprise in years, by their reckoning, should have resulted in titanic volume—and a big pop in volatility.
Not happening. Volumes are borderline heavy, but not overwhelmingly so. The CBOE Volatility Index—the simplest measure of market volatility, is down midday, below 15.
And banks are all up 2%-4% on heavier volume.
Still, given that many were still in the "Fed will not hike this year" camp, there is some surprise there is not more money moving around.
Traders I've spoken with explain this by offering two explanations:
1) long-term investors don't act like macro hedge fund guys and shift their portfolio on a dime. Investment committees—the ones who run the pension funds and the mutual funds--do not make snap decisions on asset re-allocation in the course of a morning. Many will be meeting over the following days--and weeks--to decide if they need to make changes.
But even then, a surprising number are arguing that many will simply decide on a stay-the-course-with-equities approach:
2) The Fed is trying to project a sense of optimism about the economy from the Fed, and what's wrong with optimism about the economy?
The Fed is not changing much; global rates are going to remain low for a long time, particularly in Japan and Europe.
In the context of still-low rates today and in the near future, this is still an investable climate because a modest economic expansion is ongoing. Stock multiples-—lightly on the high side right now—should not be threatened by the Fed hiking rates. Capital flows are still moving into the U.S.
Oh sure, there could be a period of stress and turbulence when the hike occurs, but this has been so well telegraphed it's hard to envisage it would last very long.
Mostly, though, it's good to shift the focus away from liquidity and towards earnings and growth.
And that's the key point: growth continues, and there is no sign of recession. That is the ultimate killer.
Labor force growth, with GDP growth of 2% is good enough to keep the jobless rate moving down.
Most importantly, the key missing ingredient—wage growth—may be starting to move as well. Average hourly earnings up 0.4% month-over-month, 2.5% year-over-year. Don Strazheim at ISI noted this morning that once average hourly earnings start to accelerate, they typically go from 2% to 4% in roughly three years.
These numbers should at least give the FOMC some hope that their 2% inflation growth target may happen sooner rather than some time in the distant future.
Get it? That's the argument for the stay-the-course-in-stocks crowd. Oh sure, you can play around the edges—buy some more banks, sell some utilities, stay away from commodity names, but the central argument—keep owning the S&P 500—isn't changing.
It's certainly a plausible explanation for why the world isn't moving on the jobs number.
Still it's hard to believe there won't be some turbulence. One serious headwind for stocks: the continuing strength of the dollar, which is a major problem for foreign company earnings. There had been hope over the summer that the dollar strength was moderating, but that has not panned out.
The dollar index today is at its highest level since April.
This will continue to put pressure on commodities like copper and oil, and the earnings of companies in those businesses.
The stunningly strong October jobs report — up 271,000 for the biggest 12-month gains since July 2009 — has many investors high-fiving. But others are surely scrambling to revise their bets.
The world was divided into two camps: those who believed a hike in December was coming and those who didn't.
Those who did listened to Fed officials' rhetoric — that they really wanted to raise rates — and made bets in that direction. There were several macro bets and stock sector bets.
Macro trend bets
Stock sector bets
Here's one reason we had such an strong (and interesting) rally in October. Because some of the data was weak, the camp that believed there was no chance the Fed was going to raise in December gained traction.
The first wave of mid-sized oil and gas exploration and production companies has reported, and the results are more encouraging than many had anticipated. Production levels remain relatively high — in most cases at or near year-ago levels — yet capital expenditures are way down.
This means companies are employing new technologies and learning to produce more with less. Capital efficiency is increasing dramatically.
Look at Marathon Oil, out last night after the bell. The loss of 20 cents was far less than the 40-cents expected loss. Sales volumes were higher than expected. Production expenses came in lower than expected. Capital expenditures for 2015 are being cut more than estimated, and projected capital expenditures for 2016 are also being slashed further.
Devon Energy also reported a sizable earnings beat (76 cents vs. 52 cents consensus), with production higher than expected, and spending lower than expected. For 2016, it looks like capital expenditures will be much lower, with production increasing in the low single-digits.
You see? Production steady, but spending much lower. Earnings somewhat better than expected. Doing more with less!
A New Jersey trader became the first person to be convicted on a charge of "spoofing," flooding the market with orders he did not intend to execute.
Though the conviction involved attempts to manipulate the commodities futures market, the ruling has implication for stock trading as the case provided a guideline to the somewhat nebulous concept of "spoofing."
Spoofing was made illegal by the 2010 Dodd-Frank Act.
The good news is that stocks are on a real win streak. And it's a broad win streak, with previous laggards like the Russell 2000 also showing strength.
Of course, markets can — and do — remain overbought for a long time.
If you believe — as many do — that the bulk of the rally is due to expectations that the Bank of Japan (BOJ) and the European Central Bank (ECB) will continue and even add to their quantitative easing programs, and that the Fed is on hold, pay attention to next two days, because all the Fed officials are speaking, though they may not directly address the issues of most concern to investors.
Central Bankers speaking:
If the Fed is going to begin tightening in December, you would at least expect Fischer and Dudley to begin laying the groundwork now.
Decidedly not oversold are commodity companies, which are having a simply horrific year.
Commodity companies YTD:
Alcoa is having its analyst meeting today. The top issue is the pending split up of the company into an upstream division that engages in alumina production and smelting, and the faster-growing value-added division that makes aluminum for the aerospace and vehicle industries, including the aluminum Ford F-150.
But there's no getting away from the continuing overcapacity and decline in aluminum prices. Last night Alcoa said it would idle three of its four active U.S. aluminum smelters. That is a radical move, the steepest cuts yet by an aluminum producer and a sign of how bad things have become.
This is another slow week for IPOs — only five are scheduled, none of any size — and that has a few in the business a little nervous.
The IPO market for 2015 is closing fast. There are only a few weeks left in the year. Nothing will get done Thanksgiving week or the second half of December.
That leaves roughly four weeks for a lot of waiting IPOs to get through the door.
We are well below the average number of IPOs and the amount raised compared to the last several years.
But the number of companies looking to go public has not slowed down. This means a lot of companies are hoping to get through the doors in the next few weeks.
Tops on the list: Match.com with a potentially $700 million offering, Square at $275 million, Ballast Point Brewery at $173 million, and cybersecurity firm Mimecast at $100 million.
Mom and pop crowdfunding for startups is about to become a reality.
That's good news, but it also comes with a lot of red flags.
On Friday, the Securities and Exchange Commission is expected to issue a final rule regarding Title III of the JOBS Act. This will allow small companies to directly raise debt or equity capital from friends, family, and interested investors.
The SEC has taken three years to consider what they are doing, and with good reason.
Read MoreThe CNBC Crowdfinance 50 Index
In 2012, Congress passed the Jumpstart Our Business Startups Act, known as the JOBS Act. One of its provisions allows new businesses to raise capital from directly from private investors.
This is a radical idea. Since the 1930s, only "accredited" investors — those with $1 million in net worth or who earn at least $200,000 per year — were allowed to invest in startups.
In other words, only rich people could get in on these private equity deals.
I've been noting the "revenue recession" that corporate America has been facing for the last six months.
We are faced with the prospects of four consecutive quarters of negative revenue growth in 2015.
Companies cannot even beat the lowered revenue guidance for this quarter. With 20% of the S&P 500 reporting, 70% of the companies have beat earnings estimates, but only 38% have beat revenue estimates.
That is pathetic!
Why has this been happening? I've been pointing out the negative influence the strong dollar has had on corporate earnings for two quarters now.
There's no question that the strong dollar is hurting companies, particularly those that get more than half of their revenues overseas.
However, I've noticed a certain tendency to dismiss the disappointing revenue numbers as solely due to the influence of the strong dollar.
That, it seems to me, is an exaggeration.
Orders are definitely deteriorating for many companies, and that is due to the slower global economy, not a strong dollar.
The problem is, there is no easy way to sort this thread out, to say, for example, "The strong dollar is 60% of the reason companies have missed revenue expectations."
But you can get a clue by looking at who is beating revenue expectations, and who is not, by sector.
All the larger sectors get roughly 50% of their sales outside the U.S.
If the stronger dollar was the only issue, there should be a roughly even distribution of sectors beating--or missing—revenue expectations.
But that's not the case. Look at this:
Q3 Revenue beats
Source: S&P Capital IQ
Healthcare and tech are clearly doing better, and industrials and materials are lagging noticeably.
Why are the results so lopsided? Because industrials and materials are exposed to the slower global industrial economy and are reporting lower sales. Tech and healthcare, while also exposed to the global economy, are in sectors with better growth prospects.
This is why we hear of so many companies carving out small gains on earnings but miss on revenues: just yesterday, we heard from DuPont, Cummins, Paccar, and Textron, all global materials/Industrial names that are exposed to China and Brazil. Their sales are slowing because of the slower economies.
So let's call it a draw. The dollar and the slower global economy are the two major reasons revenues are light, and let's leave it at that.