The major indexes rose to market rally highs on Tuesday but then retreated amid hawkish Fed comments and mixed earnings. But indexes found support near key levels and bounced back Friday. Walmart, Ross Stores and Foot Locker were among the winners while fellow discounters Target and BJ's Wholesale had weak results or guidance or both.
Chinese e-commerce giants Alibaba and JD.com jumped on strong earnings. Nvidia reported mixed results and guided low. The 10-year Treasury yield plunged amid more tame inflation data, briefly undercutting the current overnight fed funds rate, but rebounded somewhat. Crude oil prices tumbled.
Market Rally Rebounds From Key Levels
After surging in the prior week, the major indexes initially rose, but then pulled back amid hawkish Fed comments. However, they held key support levels and bounced modestly, paring losses. Recent breakouts struggled amid the market volatility, but they didn't necessarily break. Treasury yields tumbled but then rebounded. Crude oil prices sold off hard.
Inflation Cooling, Consumers Strong
The producer price index showed wholesale inflation slowing to 8% from a downwardly revised 8.4% the prior month. The core PPI inflation rate eased to 6.7% from 7.1%. That follows the prior week's cooler-than-expected consumer price index.
Yet retail sales rose a stronger-than-expected 1.3% in October on 0.9% excluding vehicles and gas. Sales at restaurants and bars grew 1.6% on the month and 14.1% from a year ago, indicating a healthy appetite for discretionary spending. Still, economic weakness is spreading beyond housing. Industrial production dipped 0.1% in October, after September's gain was revised down to 0.1% from 0.4%. New jobless claims dipped 4,000 to 222,000 in the week through Nov. 12, but the number of people continuing to claim benefits rose 13,000, topping 1.5 million for the first time since March.
But a host of Fed speakers made clear that the data is nowhere near soft enough to contemplate a rate-hike pause. The starkest comments came from St. Louis Fed President James Bullard, who said the Fed's key rate may have to rise to the 5%-7% range to be sufficiently restrictive.
Seven Investing Rules For A Tricky Market; Tesla Hits New Lows
Walmart, Target Show Sharp Contrast
The discount giants diverged sharply with results, guidance and stock prices. Walmart earnings unexpected rose 3% with revenue up 9%, amid strong same-store sales and inventories getting under control. The retailer also raised guidance. Target reported a 49% EPS decline, far worse than expected. Sales rose 3%, just beating. But Target also guided poorly on holiday sales. WMT stock blasted past a handle buy point. TGT stock plunged 13% Wednesday, but did pare weekly losses somewhat.
Nvidia, Micron Show Weakness
Graphics-chip maker Nvidia and memory-chip maker Micron Technology pointed to near-term sales weakness in their respective markets in separate reports. Nvidia delivered a mixed fiscal third-quarter report and offered sales guidance slightly below Wall Street's forecast. Micron announced that it is slashing production of memory chips, citing bloated inventories. Elsewhere, chip-gear maker Applied Materials delivered a beat-and-raise report for its fiscal fourth quarter.
BJ's Wholesale Tumbles On Guidance
The membership warehouse chain topped Q3 views with a 9% EPS gain and a 12% sales rise, though that ended accelerating growth for both. BJ's Wholesale sees weakness next year, sending shares tumbling in heavy volume.
TJX, Ross Soar On Results
TJX earnings topped Q3 views with a 2% gain, which was enough to offset weak revenue and disappointing holiday-quarter guidance. Ross Stores EPS fell 8% while sales were flat and comps slid 3%, but those all beat forecasts easily. The off-price apparel chain also lifted full-year targets. TJX rose sharply, moving out of range. ROST stock gapped out of a buy zone.
Home Depot, Lowe's Top
The home improvement retailers beat third-quarter views amid a challenging environment. Home Depot reported 8% EPS growth while revenue increased 5.6% to $38.87 billion. Lowe's earnings popped 20% as revenue grew 2.2% to $23.5 billion, marking its first positive revenue quarter since January. The stocks were little changed after big gains in the prior week.
Cisco Earnings, Guidance Tops
Cisco Systems reported fiscal Q1 earnings rose 5% with revenue up 6% to $13.6 billion, both modestly beating. The networking giant guided slightly higher for the current quarter. Cisco also announced a restructuring plan.
China E-Commerce Giants Beat
Alibaba and JD.com topped earnings views but both missed on revenue that was roughly flat with a year earlier. That's in stark contrast to the past, in which the two China e-commerce giants consistently reported double-digit gains in revenue. Alibaba and JD, along all the other internet companies in China, continue to struggle amid macroeconomic weakness, a resurgence of Covid-19 shutdowns, burdensome regulations and more. Both stocks jumped.
LNG Earnings Mixed
Two more liquefied natural gas shippers reported this past week with mixed results amid volatile natural gas prices and as European gas stores are mostly filled for the winter. Golar LNG beat third-quarter earnings views but missed on revenue, which fell 35% to $68.6 million. Earlier, Flex LNG reported a 32% EPS gain while revenue rose 11% to $91.3 million, both beating, as a strong LNG market boosted its backlog. These reports follow mixed results from LNG giant Cheniere Energy and New Fortress Energy earlier this month.
Building Products Makers
Griffon Corp. reported a 230% EPS gain for fiscal Q4, easily beating views, with growth accelerating for a fourth straight quarter. Sales rose 24% to $708.9 million in line. The building products and tools maker also raised its quarterly dividend by 10%. Shares plunged Thursday morning but quickly slashed losses. Atkore jumped after EPS grew 26%, while guiding up on Q1 EPS.
News In Brief
Warren Buffett's Berkshire Hathaway disclosed a big new stake in Q3 in Taiwan Semiconductor, sending shares of the chip foundry giant soaring. Berkshire also took new positions in Jefferies Group and Louisiana-Pacific. Both popped on the news but pared gains.
Palo Alto Networks reported fiscal Q1 EPS rose 50%, while revenue grew 25% to $1.6 billion and billings 27% to $1.7 billion, all beating. The cybersecurity firm guided higher on Q2 EPS. Palo Alto also announced the acquisition of Cider Security for $195 million cash.
Moderna surged on Monday, pulling Pfizer and BioNTech shares higher, after reported promising data for its bivalent Covid booster shot. The updated vaccine led to a 15.1-fold increase in antibodies capable of handling the BA.4 and BA.5 sub-variants of omicron as well as the ancestral strain compared to pre-boost levels.
Freyr Battery widened its net loss more than expected, but management expects to start sample cell production in early 2023, a key milestone. KKR reportedly is looking to invest in the Norwegian startup.
General Motors raised its 2022 free cash flow target and said it sees EVs turning profitable by 2025.
Foot Locker's EPS fell 34% while revenue dipped 0.5%. Same-store sales rose 8% vs. views for 6% decline. The mall-based athletic shoe retailer also guided higher for the holiday Q4.
