Market Preview: Progress on U.S./China Trade War Lifts Markets, Earnings from Dollar General and Autozone

Markets rallied strongly Monday after President Trump and Chinese President Xi Jinping agreed to a 90 day moratorium on trade tariffs in which the U.S. will hold off on raising tariffs by 25% at the beginning of 2019. Larry Kudlow, the President’s National Economic Council Director, said “If China opens its markets as they promised to do, and they’re going to do it fast according to their promises, we will increase our exports substantially…” Kudlow is well known on Wall Street, and many analysts put faith in his comments over often exaggerated political commentary regarding trade. Markets rallied from the outset Monday morning, gave back some of those gains, and then rallied again near the close. Investors are hoping Director Kudlow is correct and for a quick resolution to the trade issues. If a resolution is not arrived at either before, or soon after, the new year markets will see the 90 day window as simply kicking the can down the road.

Dollar General (DG), Autozone (AZO) and Marvell Technology (MRVL) all report earnings on Tuesday. As Todd Vasos, CEO of Dollar General stated last quarter, “our two-year same-store sales stack for the second quarter of 2018 was the highest in 10 quarters.” The company has been hitting on all cylinders this year, and raised earnings estimates as a result. The stock has been little impacted by the market pullback, and analysts expect another strong quarter from the discount retailer. Autozone earnings are expected to increase 23% year-over-year when the company reports before the bell Tuesday. After selling off earlier this year the stock has regained the $800 level, recently hitting all-time highs. Analysts are looking for another strong quarter, and an update on the company’s aggressive buyback program.

Tuesday, investors will get to take a peak at motor vehicle sales and Redbook retail numbers. The auto sales number is expected to decrease slightly to 17.2 million from the 17.5 reported in October. But both month’s numbers increased dramatically from a summer slump. Wednesday was to see Fed Chairman Powell deliver testimony to Congress’s Joint Economic Committee. But, the passing of President George H.W. Bush, and the declaration of a national day of mourning, means that testimony will be postponed. Stock markets in the U.S. have also announced that they will be closed on Wednesday to honor the nation’s 41st President.  

Wednesday the earnings focus on retailers continues as lululemon (LULU), Five Below (FIVE) and American Eagle Outfitters (AEO) report earnings. Last quarter lululemon handily beat estimates by 44% sending the stock higher yet again after an earnings beat. The stock has performed exceptionally well this year, rising from $80 to around $140. Investors will be looking for the athletic apparel company to provide color on the final few months of the year as we’re in the midst of the holiday season. American Eagle has stair-stepped lower since August of this year. The company has invested heavily in its online operations, and has achieved relatively strong sales numbers from that channel the past few quarters. Analysts will be looking for an update on the progress of the online initiative and what hurdles the company is encountering as it broadens its platform.

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