With a Friday rally that sent the main US indexes to their best closing levels in over two months, the stock market resumed its upward trend last week.
As the holiday shopping season gets underway, investors should expect a packed calendar of information on the state of the US consumer in the next week.
Investors will get a critical inflation figure from the October Consumer Price Index (CPI) data on Tuesday, following multiple Federal Reserve officials’ attempts last week to maintain the possibility of further rate rises.
A slate of corporate results largely centred on the consumer will be highlighted by big box retailers including Home Depot (HD), Target (TGT), and Walmart (WMT). Macy’s (M), TJX Companies (TJX), and BJ’s Wholesale (BJ) are also scheduled to
The state of China’s economy raises concerns, therefore investors will be keenly monitoring JD.com (JD) and Alibaba (BABA) earnings.
Investor attention will also be piqued by news that Moody’s revised its outlook on US government debt from “stable” to “negative” late on Friday. This is because rising interest rates would increase the cost of servicing the government’s mounting debt.
All in all, stocks increased last week; the S&P 500 had been winning for eight days until Thursday’s blip.
All three main indexes have increased year to date; the Nasdaq (^IXIC) has returned to above 30% annual gains, the S&P 500 (^GSPC) has increased by 15%, and the Dow Jones Industrial Average (^DJI) has up by 3.4%.
During an IMF event on Thursday, Federal Reserve Chair Jerome Powell expressed doubts about the central bank’s intention to keep interest rates unchanged in the upcoming months. He said, “If it becomes appropriate to tighten policy further, we will not hesitate to do so.”
The course of the Fed’s rate hikes was somewhat changed by these remarks.
According to the CME FedWatch Tool, as of Friday afternoon, markets were pricing in a roughly 22% possibility that the central bank will rise interest rates by the conclusion of its January meeting. This is an increase from the 9% chance that markets anticipated just one week earlier.
Powell did, however, restate that the Fed will “move cautiously” going forward using this strategy.
Analysts predict the headline October’s CPI inflation increased 3.3% over the previous year, down from September’s 3.7% increase. In contrast to September’s 0.3% growth, prices are expected to increase by 0.1% this month. A large portion of the slowdown is anticipated to be caused by a drop in energy costs.
October CPI is expected to increase 4.1% over September on a “core” measure, which eliminates the volatile food and energy categories. It is anticipated that monthly rises in core prices will average 0.3%, which is consistent with the previous month.
“EY Chief Economist Greg Daco wrote in a note previewing the release that moderating wage and job growth, along with slower demand for goods and services, easing rent inflation, and reduced pricing power should lead to further disinflation and argue in favour of the Fed holding the fed funds rate constant in the coming months.”
The October retail sales data, according to Wall Street experts, indicates that consumers’ willingness to spend may be beginning to wane. According to Bloomberg data, analysts predict that retail sales would decline 0.3% in October over the previous month, which would be the first negative reading since March.
Aggregated data from Bank of America’s credit and debit cards indicated a 0.5% decline in spending in October compared to the same month last year, the company said in a research note on Thursday. The company did point out that a large portion of it could have been caused by the drop in energy costs, similar to the inflation print.
The week of corporate reports will be highlighted by Walmart and Target, as investors seek updates on the retail crime situation, consumer conditions, holiday shopping season, and potential effects on spending from the start of student loan installments.
This year, the two stocks have followed different routes.
Outperforming the S&P 500, Walmart’s stock has increased by almost 16% in 2023. This growth has come from some customers selling down as inflation puts pressure on household finances, especially in the grocery aisle.
As a result of its greater reliance on discretionary spending—Goldman Sachs estimated in July that 60% of Target’s sales are made up of discretionary goods—Target, on the other hand, has seen its shares fall by almost 35%. This presents a challenge to the retailer in a situation where consumers report feeling worse about the economy than most data indicates.
The way both companies have performed so far this year also serves as a reminder that, technically speaking, they are in distinct industries. Walmart is a Consumer Staples (XLP) stock, while Target is a Consumer Discretionary (XLY) brand.
“There’s a huge pool of retailer stocks in consumer discretionary, and some of them are really thriving this year, reporting really decent earnings and getting rewarded for it,” Callie Cox, an investing analyst for eToro US, told Yahoo Finance. “And then there are others that have really struggled, you know, durables, bigger appliances, appliance manufacturers, auto parts, manufacturers, and auto manufacturers.”
According to Cox, the atypical stock reactions this earnings season are caused by the dispersion across equities; firms who miss profits experience a greater decline in their stock price, while those that achieve favourable numbers get a lesser reward.
“That’s why it’s important as an investor to really understand what kind of risk you’re taking on because companies are getting hit hard by these higher interest rates, especially smaller, speculative companies,” Cox stated. “You see that flow through in events like earnings and management calls, the effects become more apparent.”
The initial jobless claims for the week ending November 11 were 217,000 in the previous year. The month-over-month import and export prices for October were -0.3% and +0.1%, respectively. The month-over-month industrial production was -0.4% and +0.3%, respectively. The Philadelphia Fed’s business outlook for November was -11 expected, -9 previously. The NAHB housing market index was 40 expected, 40 previously.