Kohl's, TJX report earnings — What you need to know in markets on Tuesday

Myles Udland
Markets Reporter

Stocks gained ground on Monday as markets closed in on a milestone for the current bull run.

As LPL Financial noted last week, on Wednesday, the stock market’s current run will become the longest ever, eclipsing the 1990s run that preceded the tech bust.

Expect the coming days to involve plenty of debate over whether the bull market paused in 2011 or 2015 and whether these market declines constitute an end to the bull run that began in March 2009 and whether a new leg of the post-crisis market rally began after Trump’s election. (They did.)

Another topic likely to continue making headlines on Tuesday and for the balance of the week is the Federal Reserve, and in particular President Donald Trump’s relationship with the central bank.

On Monday, Bloomberg reported that Trump this weekend lamented the Fed’s recent moves to raise interest rates at a gathering of GOP donors in the Hamptons. And just before the market close on Monday, Reuters published an interview with Trump during which the president told the news agency he is “not thrilled” with the Fed raising rates.

We’re negotiating very powerfully and strongly with other nations. We’re going to win. But during this period of time I should be given some help by the Fed. The other countries are accommodated,” Trump said.

This is not the first and likely not the last time Trump will speak about Fed policy. Fed chair Jay Powell, we’d note, will speak before the year’s biggest gathering of economists and policymakers at the Jackson Hole Economic Symposium on Friday morning.

Federal Reserve board member Jerome Powell speaks after President Donald Trump announced him as his nominee for the next chair of the Federal Reserve in the Rose Garden of the White House in Washington, Thursday, Nov. 2, 2017. (AP Photo/Pablo Martinez Monsivais)

Now turning to the calendar for Tuesday, the week in retail earnings will start kicking into gear with Kohl’s (KSS) and TJ Maxx parent company TJX Companies (TJX) reporting results.

Wall Street analysts expect same-store sales at Kohl’s rose 2.7% during the second quarter while TJX’s same-store sales are projected to rise 2.4%, according to estimates from Bloomberg.

Shares of both companies have outperformed the S&P 500 handily over the last year, with TJX rising 41% over that period while Kohl’s stock has more than doubled.

And on the economic calendar, there is no major data set for release.

Earnings from Kohl’s will be an investor highlight on Tuesday.  (AP Photo/John Raoux)

What Wall Street said in Q2

Except for some stragglers in the retail sector, second quarter earnings season is mostly over.

The results were pretty stellar — through August 13 with 91% of the index reporting results, S&P 500 companies had reported a 24.6% increase in earnings per share over the prior year period, according to data from FactSet.

According to a new report from analysts at Goldman Sachs, there are three themes that stood out on earnings conference calls during the last few weeks — trade, margins, and wages.

“S&P 500 margins stand at an all-time high, but pressures are mounting in the form of commodity price inflation, increased logistics costs, and labor inflation,” the firm said in a note.

“In addition to these cost increases, wages have accelerated in 2018, bringing the GS Wage Tracker to 2.7%, the second highest reading since November 2008. This matched the pace of average hourly earnings from the most recent July jobs report (2.7%). These headwinds support our forecast for flat margins of roughly 11% through 2020.”

Which sounds to us like the economic cycle heating up and companies coming under more pressure to deliver increasing profit margins to investors. And against the background of the Fed raising rates, it is no wonder that more and more economic conversations are centered on the question of when the next recession might occur and what it might look like.

Commentary from S&P 500 companies on trade, however, is what really caught our eye as managements seem generally sanguine on the prospect of increasing trade tensions denting their business.

“Most S&P 500 companies reported seeing little, if any, impact from the tariffs,” Goldman said.

“Firms emphasized their commitment to free trade and their ability to adapt should the matter begin to have a direct effect on business. Notably, firms underlined nimble supply chains and the ability to pass costs onto customers. Several managements sought to pre-buy products before the tariffs are implemented.”

“Nimble supply chains” sounds like the outgrowth of a fully-MBA’d management class belt-tightening with haste as economic conditions get tougher in order to deliver the profits forecast by analysts. It also more simply translates to layoffs.

And passing costs onto customers sounds to us like inflation. Something that is already making its presence known as commodity prices rise and the competition for labor heats up.

But higher prices, fewer jobs, and companies working to protect margins is not the kind of behavior seen as generating a new phase of economic and market growth, but the final phase of a business cycle. And yet these dynamics are being greeted by something like a corporate shrug. Someone will be wrong.

Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland