Strong Nike Earnings Lift Dow

Pre-open sentiment indicated a positive start for the major indexes on the last full trading session ahead of the Christmas, with the favorable tone of this morning’s income and spending data reconfirming the economy’s modest growth trajectory. The major indexes are still modestly in the negative for the year, but positive momentum at this late date has the potential to push them over the edge into positive territory.

On the data front, we got a bigger-than-expected gain in November Personal Income (up +0.3% vs. estimates of +0.2%), while Spending matched estimates at +0.3% and the prior month’s strong +0.4% gain remaining unrevised. The favorable momentum in income is consistent with what we have been seeing in recent jobs readings, though the gains haven’t showed up to the same extent in consumer spending, resulting in a better savings rate in the aggregate.

The improvement in income and savings is a net positive for the economy, though retailers would like consumers to be spending their higher incomes instead of saving them, particularly during the holidays (today’s report was for November).

Unlike the income and spending report, this morning’s Durable Goods report was mixed, with the report’s ‘headline’ growth coming in better than expected, but the ‘core’ reading coming short of estimates. The ‘core’ reading, known in the report as non-defense capital goods excluding aircraft, came in at a decline -1.8%, with the prior-month’s reading getting revised down into negative territory.

This ‘core’ reading serves as proxy for private sector capital expenditures, which has been under pressure for some time, based on weakness in the manufacturing sector as a result of global growth issues, and the energy sector’s well-known problems. None of these are new issues, but today’s Durable Goods report reconfirms that the problems in that space aren’t going away any time soon.

Dow component Nike’s (NKE) strong earnings report will likely be a big help for the index, with the company’s better-than-expected order outlook giving the stock a boost at the open. Not everyone is in Nike’s position, however, as the weak guidance today from Micron (MU) and Bed Bath & Beyond (BBBY) shows.

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