This week should give us a significant glimpse into the domestic economy with earnings from major retailers: Home Depot (HD), Wal-Mart (WMT), T.J. Maxx (TJX), Coach (COH), Foot Locker (FL), and Dick’s Sporting Goods (DKS). There is also data in housing and several reports that measure enthusiasm among consumers.

The information is important and will move the market, but it will also be a reminder that it’s the growth opportunities outside the United States (OUS) that’s moving bottom lines and the stock market.

With more than 90% of companies reporting for the second-quarter growth outside the United States made the difference.  Domestic revenue is still 70% of the total, but there are certain realities of being able to sell to the other 95% of the planet.

This highlights the importance of the Trump Administration’s efforts to curb trade abuse in China and to open their markets while renegotiating the North American Trade Agreement (NAFTA). Yesterday, the Administration announced an investigation into China’s IT and trade partnership policies under Section 301 of the 1974 Trade Act.

This is the same tool President Reagan used to impose tariffs on Japanese motorcycle makers in the early 1980s. Three years into the tariffs, Harley asked the president to remove those tariffs. The findings of this investigation would allow President Trump to circumvent the World Trade Organization (WTO) rules to impose tough trade restrictions.

Note: The United States hasn’t imposed trade sanctions since joining the WTO in 1995. Tackling the theft of intellectual property by China is long overdue, but Wall Street will become very worried about the next battleground. Therefore, the administration is taking it slowly.

Moving the Economy

The Dow Jones Transportation (DJT) Index was down more than 4% in the past month – most participate in the broad rally.

• One Year: +19.7%
• YTD 2017: +3.3%
• One Month:-4.1%

One rail name I like as a proxy for the U.S. economy is Genesee & Wyoming (GWR), which posted encouraging July traffic data last week. Also, lumber bodes well for housing and metals for bigger building projects.

Today’s Session

It’s been an interesting morning for retail as several well-known names have reported quarterly financials with mixed to negative reactions. I like the results from Coach, TJ Maxx and Home Depot, and think selling was already built-in for some. I wouldn’t follow them.

 The July Retail Sales report came in at +0.6%, which doubled several consensus numbers. Big positive surprises on motor vehicle and department stores, but strong trends were reinforced including material and garden, furniture and online.