 The Market Sum | Insight after the bell
By James Early Thursday's Headlines 1. U.S. Markets Enjoy a Day of Mixed Calm 2. Overstock CEO "Too Controversial" for even Overstock 3. Nordstrom Exceeds Low Expectations—But Will it be Enough? 4. U.S. Manufacturing Shrinks for the First Time Since 2009 Markets Closed
 Markets Today
Markets were largely flat as investors digested yesterday afternoon's release of the Fed's July meeting minutes and didn't seem to find anything worth panicking or celebrating about. A moment of flatness—we can call it "calm"—is okay, sometimes. Right?
Especially because tomorrow, we'll hear from Fed Chair Jerome Powell as he relays the Federal Reserve's latest thinking from its annual Jackson Hole conference. Reports are that Fed watchers are confident that another rate cut will come in September, so their focus is more on how well Powell—a "golfer who can't putt," per President Trump's tweet yesterday—massages his message. Powell has made an effort to be transparent, but conveying just the right tone doesn't appear to be his strength so far. We'll see how Friday goes.
Speaking of Trump, the President did mention yesterday afternoon that the potential White House-inspired tax cut (either payroll or capital gains) that had markets excited for a few days is not an option now. That partnered with an ultra-brief 2-year/10-year yield curve inversion to form the "bad news" camp, whereas some fairly positive corporate earnings—especially related to consumer spending—made up the "good news" side.
Investors are also sitting on their hands for the next volley in the U.S.-China trade war. But the main story is flatness until the Fed talks tomorrow.  Graphic credit: CNBC
Overstock It's hard to describe the drama surrounding just-resigned Overstock CEO Patrick Byrne succinctly, but the upshot is this: Overstock rose handsomely on the news of Byrne's departure, so we can at least conclude that this stock has been running with ankle weights (and maybe even a weighted vest) for a while.
Byrne became a controversial figure 15 years ago for his campaign against naked short selling—a now-illegal practice where shares are shorted that don't exist (officially, each share shorted is supposed to match a real share). Byrne alleged this type of market manipulation was hurting Overstock's shares. More recently, though, Byrne became romantically involved with now-jailed Russian agent Maria Butina, who aimed to infiltrate the NRA for Russia's benefit in the 2016 election, and declared he had assisted the U.S. government—"Men in Black," in Byrne's parlance—with the Clinton and Russian investigations, accompanied by references to a "Deep State" conspiracy.
Drama is interesting. Drama makes for riveting books and made-for-TV-movies. But for management of an online retailer, drama of this nature is seen as a distraction by shareholders. So Byrne, a cryptocurrency lover who had Overstock issue its own ICO, acknowledged that he was "far too controversial" to serve as CEO. The market agrees. But in fairness to Byrne, the stock is up roughly 65% year to date.  Nordstrom
Nordstrom's revenue of $3.78 billion underperformed the $3.93 estimate, but its per-share earnings of $0.90 vs. $0.75 estimate charmed investors enough to drive the stock price up nearly 15%. Remember that, all else being equal, shareholders prefer good news in earnings to good news in revenues; shareholders "own" earnings, whereas a lot of other folks have a claim on revenues.
Nordstrom touted a 4% gain in digital sales (far less than Target's 34% digital sales growth, but still positive), and noted the now-12 million active customers in its loyalty program make up 64% of sales.
That's great, but revenue was down and will keep going down, per forecasts, and those better-than-expected earnings were still 5% worse than last year. So results don't show a strong business as much as they show a still-softening business that just wasn't as soft as expected. Without taking sides in this debate—although in full disclosure, I have a Nordstrom belt that's nearly 30 years old and love it—this illustrates a common dilemma in investing: Is it better to try value investing by buying unloved, low-expectation businesses, or buying hot companies that may perform even better than the market expects? The answer depends on the company and on the market cycle, but considering Nordstrom's stock was $60 a year ago and is now roughly $30—even after today's gain—so far "value" isn't winning for Nordstrom shareholders.  U.S. Manufacturing Shrinks IHS Markit's August flash manufacturing purchasing manager's index (say that three times, fast) dipped below 50—indicating contraction—for the first time since 2009.
Consumer spending, as we've seen from some recent earnings reports, looks strong. So with consumer spending making up 68% of the U.S. economy and manufacturing making up less than 12%, this may seem like minor news. But manufacturing is a leading economic indicator, meaning it often precedes other things like employment and, eventually, consumer spending. The U.S.-China trade war is likely taking some toll here. The main question: What's next?
Programming note: The Market Sum will be guest written until August 28th while Caleb is out for a little summer fun with his family.
chart courtesy www.koyfin.com  Shares of Nordstrom rose by almost 16% today after reporting strong second-quarter earnings, despite revenue being lower than expected. Similarly, Keysight Technologies' stock price increased by nearly 13% following the reveal that its Q3 net income and revenue beat estimates.  Shares of L Brand fell by almost 5% today after its Q2 revenue hit below market expectations due to reduced sales from Victoria's Secret, of which L Brand is the parent company. Albemarle's stock price decreased by just over 4% amid a general lag for companies in the Materials sector.  After two days of the majority of countries performing excellently, today there were only a few left standing in the winner's circle—most notably Greece and Egypt. Of the many who suffered losses, Brazil and India were hit the hardest. Word of the Day: Naked shorting is the illegal practice of short selling shares that have not been affirmatively determined to exist. Ordinarily, traders must borrow a stock, or determine that it can be borrowed, before they sell it short. So naked shorting refers to short pressure on a stock that may be larger than the tradable shares in the market. Despite being made illegal after the 2008–09 financial crisis, naked shorting continues to happen because of loopholes in rules and discrepancies between paper and electronic trading systems.  Credits: Hulton Archive/Stringer
Today in Annexation History Aug. 22, 1770 and 1910: In 1770, Captain James Cook landed on Australia, claiming it for Britain. And, in more formal claims-taking, in 1910, Japan annexed Korea under the Japan-Korea Annexation Treaty. Some annexations last, and some don't: By 1965, the Treaty of Basic Relations declared the 1910 annexation null and void. Australia, meanwhile, eventually gained independence on Jan. 1, 1901—an easy-to-remember 01/01/01.
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Thursday, August 22, 2019
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