The stock market rally pulled back this week, with the major averages hitting resistance around the 200-day line, with most or all of the losses coming Friday. Walmart, Target and Home Depot headlined a big week of retail earnings. Bed Bath & Beyond soared but ultimately sold off, following a meme stock pattern. Retail, manufacturing and labor data came in better than expected, but housing continues to deteriorate. Crude oil and gasoline futures rebounded amid falling U.S. inventories and resurgent gasoline demand. Natural gas prices hit 14-year highs.
Market Rally Pulls Back
The S&P 500 index came within one point of the 200-day line, backing off and declining modestly for the week. The Nasdaq and small-cap Russell 2000 fell modestly. Highly valued growth suffered sharp losses. The Dow Jones, which moved above the 200-day during the week but then backed off, were little changed as of Friday afternoon. Oil and natural gas futures rallied. Treasury yields climbed to their best levels in weeks. Bitcoin sold off late in the week.
Fed Minutes
Federal Reserve meeting minutes from July 26-27, which saw a second-straight 75-basis-point rate hike, confirmed intentions to keep going until rates get to a restrictive level. Chair Jerome Powell had said on July 27 that the Fed's key rate, with a target range of 2.25%-2.5%, was already "right in the range of what we think is neutral." But the minutes undercut that view, reflecting a view that the inflationary backdrop has raised the neutral level for now. Still, policymakers noted a risk of tightening too fast, since there's a lag before rate hikes fully hit the economy. On Friday, following release of the minutes and more commentary from Fed policymakers, odds still narrowly favor a 50-basis-point hike on Sept. 21, rather than a bigger move.
Economic Data Split
The latest batch of economic data has been mixed-to-soft. Retail sales were flat on the month, a touch below expectations. But outside of weaker spending on vehicles and gas, retail sales rose a better-than-expected 0.7%. Jobless claims fell last week, while July industrial production was encouraging and the August Philly Fed manufacturing index unexpectedly turned positive. The housing market continues to be the weakest link. Housing starts slid 9.6% in July to the lowest level since February 2021. Existing-home sales slid for a sixth straight month, down 20.2% vs. a year earlier.
Walmart, Target Stick To Guidance
Walmart topped lowered earnings and sales predictions while Target missed earnings views last week. But both discount giants reaffirmed forecasts for the rest of 2022 after slashing earlier guidance. Walmart earned $1.77 per share vs. $1.78 a year earlier. Revenue grew 8.4% to $152.9 billion. Target's EPS tumbled 89% as sales grew 3% to $26 billion in the second quarter. Walmart and Target culled inventory and canceled billions of dollars in orders amid a consumer shift away from discretionary spending amid high inflation and a return to pre-pandemic habits. Walmart reported that mid- to higher-income customers are flocking to its stores. WMT stock jumped. Target reversed to slightly lower.
Home Depot Beats, Sets Buyback
Home Depot on Tuesday reported EPS grew 11.5% as revenue rose 6.5% to $43.79 billion, both topping views. Late Thursday, the home improvement giant OK'd a new $15 billion share buyback and named CEO Ted Decker to also serve as chairman as of Oct. 1. On Wednesday, Lowe's said EPS grew 10%, topping views, while revenue edged lower to $27.46 billion, slightly missing.
Chip Plays Top Views, WOLF Runs
Applied Materials, Analog Devices and Wolfspeed all reported better-than-expected quarterly earnings. Chip-equipment giant Applied Materials report slim EPS and sales gains of 2% and 5%, respectively, while also guiding higher. Analog Devices delivered 47% profit growth and a 77% sales spike, but also noted some weakness ahead. Wolfspeed, with a lot of exposure to the EV and auto markets, crushed views with a 57% sales gain and strong guidance. WOLF stock gapped sharply higher while ADI and AMAT fell.
SQM Earnings Soar, But Fall Short
Lithium giant SQM posted a massive 871% EPS rise, but fell shy of estimates. That was despite revenue topping views, spiking 342% to $2.599 billion. Higher costs accounted for the earnings shortfall. SQM pays royalties to Chile when it exports lithium, and exports surged even as sales volume dipped in Q2. That should result in cost tailwinds in the second half of the year. But SQM stock plunged.
Inflation Hits Discounters
Off-price clothing retailers Ross Stores and TJX Cos. cut financial forecasts and reported mixed quarterly results, as the industry grapples with a broader consumer pivot to everyday essentials while prices remain elevated. Ross Stores noted "an increasingly promotional retail environment" as rivals cut prices to clear inventories of apparel, electronics and other goods that more customers have turned away from. TJX said U.S. same-store sales "came in lighter than we expected as we believe historically high inflation impacted consumer discretionary spending."
Deere Results Mixed
Deere & Co. reported EPS grew 16%, but fell short of views. Revenue easily beat, growing 22% to $14.1 billion. CEO John May cited "higher costs and production inefficiencies driven by the difficult supply-chain situation." But Deere sees favorable demand conditions continuing in 2023 and is focused on working out those kinks. DE stock fell slightly.
News In Brief
Kohl's tumbled Thursday after slashing forecasts and reporting mixed second-quarter earnings, saying rising prices strained spending for its middle-income shoppers.
On Running, the running-shoe maker backed by tennis star Roger Federer, reported second-quarter results that beat expectations, and boosted its full-year sales forecast. But shares still fell.
ZIM Integrated Shipping reported a 50% EPS gain that missed expectations, but stuck with its full-year forecast. The seaborne container liner said shipping volumes, and it's "seen a gradual decline in freight rates" over the past several weeks. But it said ports remained backlogged amid steady demand. ZIM also raised its quarterly dividend payout to 30% of profits.
Bed Bath & Beyond surged to start the week, continuing a huge run for the ailing housewares retailer/meme stock. GameStop Chairman Ryan Cohen disclosed big BBBY options holdings Monday night, fueling gains. But on Wednesday night, Cohen disclosed plans to sell all his BBBY stock, which he did on Thursday. Shares crashed Thursday-Friday.
Foot Locker reported a 47% EPS decline that easily beat views, while sales fell 9%, in line. The mall-based shoe retailer gave somewhat-weak guidance. But it also named Mary Dillon, former CEO of Ulta Beauty as its new CEO. Shares soared.
