Daily Comment

Recent economic data has been rather anemic and yesterday the market finally seemed to take some notice, if only for a day.  The Dow Jones Industrial Average fell 42.47 points (0.28 percent), the S&P 500 Index declined 8.31 points (0.50 percent), and the Nasdaq Composite , despite relative strength for technology issues, was off 6.37 points (0.18 percent).  Yesterday's economic news included: April housing starts of 853,000, down from March's downwardly-revised 1.021 million (originally, 1.036 million) and well below expectations of 980,000; initial jobless claims of 360,000, the highest level since February (excluding the volatility from the Easter holiday problems), for the week ending May 11 as compared to an upwardly-revised 328,000 (from 323,000) for the week ending May 4 and expectations of 330,000; a reading of -5.2 (indicating contraction) for the Philadelphia Fed's  May manufacturing activity index versus 1.3 in April and expectations of 2.5. Inflation remained under control in April with the Consumer Price Index down 0.4 percent (core was up 0.1 percent) versus down 0.2 percent (core was up 0.1 percent) in March and the average estimate of down 0.2 percent (up 0.2 percent for core).  The 10-year Treasury  responded to the disappointing economic data with its yield declining six basis points to 1.877 percent. The market appears somewhat two-faced this morning as talk of the Federal Reserve scaling back quantitative easing putting continued pressure on gold prices while the poor economic readings supporting hopes for continued stimulative monetary policy and buoying stock prices.

In the News

Nordstrom Inc. (JWN-61.13) reported after Thursday's close of trading first (April) quarter EPS of $0.73, up from $0.70 in the year-earlier period but $0.03 short of the consensus estimate.  Revenue rose 5 percent to $2.75 billion as compared to the average analyst estimate of $2.81 billion. The Company cited weak demand for spring merchandise and softer performance in the Northeast and Midwest. Nordstrom did say that results showed improvement in April and noted that its lower-than-planned sales were offset by tightened control over inventory and expenses.  Nordstrom has been grappling with new demands from shoppers armed with smart phones and tablets. That's pushing the department store, considered the gold standard in customer service, to make changes such as offering free shipping for online shoppers and rolling out mobile devices for its sales associates so they can check out shoppers anywhere in the store. The Company now expects full-year sales to rise 4 to 6 percent from a prior range of 4.5 to 6.5 percent. That implies revenue of $12.63 billion to $12.89 billion. Prior analyst estimates had averaged $12.85 billion. Nordstrom reiterated full-year EPS guidance of $3.65 to $3.80, however. The consensus estimate has been $3.80. Nordstrom shares appear likely to open 2-3 percent lower this morning.

J.C. Penney (JCP-18.79) reported after Thursday's close a first (April) quarter adjusted loss of $1.31 per share versus a loss of $0.75 in the year-earlier period and the consensus estimate of a loss of $0.86. Revenue dropped 16.4 percent to $2.63 billion. It marks the fifth-straight quarter that the Company has posted large declines. The results show that J.C. Penney Co. Inc. is still reeling from the turnaround plan orchestrated by its former CEO Ron Johnson, who was ousted last month after less than a year and a half on the job. The plan included getting rid of coupons and most sales in favor of everyday low prices, bringing in hip brands like Joe Fresh and remaking outdated stores. But the changes that were meant to attract younger, wealthier shoppers, wound up turning off its loyal middle-income, middle-age customers. Penney blamed the revenue declines, which actually look better because they are being compared with big drops in the year-ago period, on old pricing and marketing strategies under Johnson. Construction to revamp its home departments is also hurting sales in some stores. Penney last month rehired Johnson's predecessor, Mike Ullman, who is adding back sales and bringing back basics. While the outcome of a turnaround of the turnaround remains uncertain, investors are responding to current poor results; the stock is down over 3 percent in today's pre-market trading.