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Rate Uncertainty Likely to Impact

Stocks are modestly up this morning, but lack conviction given the Fed uncertainty. The New Home sales report coming out a little later is the only notable economic reading today on an otherwise light data calendar.

The market is totally consumed with the Fed question: Will it announce a rate hike at next month’s meeting or delay it further? The odds have steadily gone up since minutes of the last Fed minute came out, which indicated that the market was behind the curve in reading the central bank’s intentions.

The Fed’s next steps are contingent on how the economic picture evolves in the coming days, particularly the next monthly jobs reading that comes out at the end of next week. But even on that count, many suspect that the Fed many not actually need to see a 200K-plus jobs tally to get comfortable about the economy; it could be OK with what we saw last month when the jobs report showed only a 160K tally. It is these growing rate-hike odds that have been weighing on the market lately, a trend that will likely continue in the coming days.

In corporate news, the parade of weak retail sector earnings reports continued this morning with weak results from Best Buy BBY and AutoZone AZO. The Best Buy report actually came ahead of estimates, though guidance was on the weak side, while AutoZone blamed weather for its weaker-than-expected quarterly results. Best Buy shares are taking a hit today, but they have done reasonably well lately and performed better than the S&P 500 in the year-to-date period on the back of a steadily improving operating outlook.

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