Making sense of the markets this week: November 19, 2023


Target shareholders finally avoid slings and arrows

The big headlines in U.S. retail this week centred around Target shares seeing a massive 18% spike, while Walmart shares came down over 8% after Thursday’s earnings announcement. However, we look behind those headlines to the context of those moves to get the real story.

U.S. Retail earnings highlights

All earnings numbers in this section are in USD.

  • Walmart (WMT/NYSE): Earnings per share of $1.53 (versus $1.52 predicted). Revenue of $160.80 billion (versus $159.72 billion estimate).
  • Home Depot (HD/NYSE): Earnings per share of $3.81 (versus $3.76 predicted). Revenue of $37.71 billion (versus $37.6 billion estimate).
  • Target (TGT/NYSE): Earnings per share of $2.10 (versus $1.48 predicted). Revenue of $25.4 billion (versus $25.24 billion estimate).
  • Macy’s (M/NYSE): Earnings per share of $0.21 (versus $0.00 predicted). Revenue of $4.86 billion (versus $4.82 billion estimate).

While the quarter was obviously a great redemption story for Target, these volatile stock moves were based on sky-high expectations for Walmart (the stock hit an all-time high this week before the earnings announcement) and a relatively terrible year for Target so far. It’s still down over 14% year to date even after the earnings bump.

Target’s C-suite commented that its improved margins were due to progress made on inventory management and reducing expenses, as well as reduced shrinkage (theft).

Walmart’s team stated the company is still worried about pressure on the U.S. consumer despite higher online sales (24% increase in the U.S. and 15% worldwide this year) and increased grocery revenues. 

Walmart CEO Doug McMillon believes price relief might soon be in the cards, saying that general merchandise and grocery prices should, “start to deflate in the coming weeks and months.” He said, “In the U.S., we may be managing through a period of deflation in the months to come. And while that would put more unit pressure on us, we welcome it, because it’s better for our customers.”

We’re fairly certain that Walmart will be able to resist that “unit pressure” and that it will manage to satisfy both shareholders and customers, given its track record over the years.

CPI goes down, stocks go up

If you needed confirmation that U.S. interest rates are still foremost on investors’ minds, this week’s Consumer Price Index (CPI) from the U.S. Department of Labor was a big checkmark. Stocks rallied after Wednesday’s news that headline CPI was down to 3.2% annually (before coming down slightly later in the day’s trading session).

Source: CNBC

CPI summary index report highlights

The main takeaways from the CPI report included:

  • Core CPI (which excludes food and energy prices) is still at a 4% annual rate of increase.
  • Both the headline CPI and core CPI numbers were lower than anticipated Wall Street estimates, which led to market optimism. 
  • Gasoline costs were down 5.3% annually.
  • Shelter costs were up 6.7% annually and were a major part of the overall headline inflation raise.
  • Travel-related categories ,such as hotel pricing and air travel, were also down substantially.
  • Used vehicles are down 7.1% from a year ago.
  • With unemployment rising from 3.2% to 3.9%, there should be less pressure to increase wages in most sectors going forward, thus contributing to a reduction in both headline CPI and core CPI.

Market watchers at CME Group report that the chances of any immediate interest rate hikes by the U.S. Fed have declined to nil. As you might expect, this confidence drove down long-term bond rates and raised future expectations for corporate earnings (and share prices).

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