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Futures

US Stocks Ignore Tariffs as Best Buy Earnings Fluctuate

2024-11-26

The S&P 500 futures are showing a positive premarket trend, with futures up 17 points or 0.3% ahead of the open. This indicates a relatively stable start to the trading day. However, beneath the surface, there are various signals and trends that are shaping the market. One such warning sign comes from electronics retailer Best Buy. After reporting earnings and cutting its full-year sales forecast, the company's shares are down 4%. This shows that even in a seemingly resilient market, certain sectors are facing challenges. Retailer Kohl’s is also struggling, with its shares down 17% after earnings. On the other hand, Dick’s Sporting Goods shares are up 5.9%, highlighting the diversity within the retail sector. There was a time when Best Buy was a reliable proxy for consumer sentiment, but now the market is aware that housing-related durable goods sales are struggling. For consumer electronics, the landscape has changed, with much of the sales now happening directly or through platforms like Amazon. In the bigger picture, automakers are grappling with concerns about tariffs. While General Motors is down just 4% despite its significant presence and integrated supply chain with Canada and Mexico, this still indicates the market's cautious stance. A final stock to watch is Eli Lilly, which is up nearly 5% after the Biden administration proposed a rule that could lead to Medicare and Medicaid covering the cost of its drugs. These various movements and trends in the premarket session provide valuable insights into the current state of the market and the factors that are influencing it.

Unraveling Market Movements in the S&P 500 Pre-Market

Electronics Retailer Challenges

Electronics retailer Best Buy's performance after earnings and the cut in its full-year sales forecast is a clear indication of the challenges faced by certain sectors. The 4% decline in its shares shows that even in a seemingly strong market, specific industries can be hit hard. This highlights the need for investors to closely monitor individual companies within the sector and understand the underlying factors driving their performance.

Moreover, the shift in consumer behavior towards direct sales or through platforms like Amazon has had a significant impact on electronics retailers. Best Buy, which was once a dominant player, is now facing increased competition and changing market dynamics. This serves as a lesson for other retailers in the sector to adapt and find new ways to reach consumers.

Automaker Tariff Worries

Automakers are currently struggling due to concerns about tariffs. General Motors, despite its large presence and integrated supply chain with Canada and Mexico, is down just 4%. This shows that while tariffs are a significant concern, the market is also taking into account other factors such as the company's fundamentals and its ability to navigate through challenging times.

The situation with automakers highlights the complex nature of the market and the need for investors to consider multiple factors when making investment decisions. Tariffs can have a significant impact on companies' costs and supply chains, but other factors such as management strategies and market trends also play a crucial role.

Biden Administration's Impact

Eli Lilly's nearly 5% increase after the Biden administration proposed a rule allowing Medicare and Medicaid to cover the cost of its drugs is a significant development. This shows that government policies can have a direct impact on individual companies and the market as a whole.

The move by the Biden administration could potentially open up new markets and increase demand for Eli Lilly's products. It also highlights the importance of government regulations and policies in shaping the business environment. Investors will need to closely monitor such developments and assess their potential impact on different companies and sectors.

Last week, Reliance Industries witnessed an extraordinary surge in its outstanding positions within futures contracts. This remarkable elevation reached its zenith in 18 years, as traders strategically placed bearish bets during the recent months of weakness in the stock. Analysts have pointed out that the stock is currently oversold, and a shift in sentiment could trigger the liquidation of these bearish positions, potentially leading to significant short-term movements.

Unraveling the Dynamics of Reliance Industries' Futures Market

Open Interest and Outstanding Positions

On November 28 (Thursday), the open interest or outstanding positions for Reliance Industries soared to 185.38 million shares, marking its highest level since 2006. This significant increase came from a low of 68.48 million shares on July 10. Open interest represents the number of active contracts encompassing both bullish and bearish positions. However, on Friday, the open interest dipped to 174.32 million shares due to the 1.6% upward movement in the stock to ₹1,292. Despite this decline, analysts still emphasize that the outstanding positions remain at a high level.

ETMarkets.com reported on these developments, highlighting the persistent decline in Reliance Industries' shares over the past four months while the open interest consistently rose. This indicates a continuous build-up of short positions in derivative contracts.

Reliance shares have witnessed a substantial 18.7% decline since July 10, in contrast to the 1.2% drop in the benchmark Nifty 50. The oil & gas sector in India has underperformed, exerting a negative impact on Reliance as it is one of its core businesses. During the September quarter, gross refining margin (GRMs) or oil cracks were weak, ranging from $3 to $6 per barrel, leading to a degrowth in EBITDA for the O2C (oil to chemicals) segment. GRM, a crucial measure of a refinery's profitability, is the difference between the total value of petroleum products produced and the raw material costs. With winter approaching, analysts anticipate that GRMs are likely to expand during the October-December quarter.

Brokerage Views and Market Sentiment

Earlier in November, brokerage CLSA identified an "attractive entry point" in Reliance shares. The brokerage set a price target of ₹1,650 on the stock, suggesting a potential 27.7% upside from Friday's close. Citi also revised its rating on the stock from 'Neutral' to 'Buy' with a price target of ₹1,530, citing a favorable risk-reward ratio following the recent share decline.

Sandip Sabharwal, the founder of investment advisory asksandipsabharwal.com, noted that a change in market sentiment could prompt traders to cover their bearish bets. Reliance Industries has seen a build-up of short positions as traders have been following the generally negative market trend. However, most of the negative factors, such as lower oil prices and lower Q2 earnings, have already been factored in.

He further stated that the markets are currently "reasonably oversold" and that December has historically been a good month for markets. Therefore, a turnaround may occur in the next few days.

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