US stocks continued to extend their optimism, with participants believing the Federal Reserve could slow the pace of interest rate hikes amid weak inflation data. According to FedWatch, the probability of a 50 basis point rate hike is now 55%, while the probability of a 75 basis point rate hike is 45% (up from 32% and 68% respectively, a week ago). Technically, the S&P 500 closed its fourth straight week of gains (the longest winning streak since October 2021) at 4280. The index has recovered more than 50% of its losses since the start of the year, it added 17 more points on Monday to close at 4297.
Today (August 16), two major US retailers, Walmart and Home Depot, will report earnings before the market opens. Both reports will be for the fiscal quarter ending July 2022. Walmart operates supermarket chains, discount department stores, and grocery stores, while Home Depot sells tools, building products, appliances, and services. The latter is also the largest home improvement retailer in the United States. In terms of market capitalization in the retail space, Walmart is second with $362.43 billion (behind Amazon), while Home Depot came in third with $323.62 billion.
Fig 1: US retail sales and Michigan consumer confidence index. source: Trading Economics
The latest data shows that US retail sales remain strong. They jumped 1% in June, recovering from a downwardly revised decline of -0.1% in May. On the other hand, the Michigan consumer confidence index improved to 55.1, the highest level in three months, beating market expectations of 52.5. Both figures may reflect a positive outlook for companies in the retail sector in the near term.
Fig 2：Walmart reported sales and EPS vs analyst forecasts Source: money.cnn
Walmart’s net sales have been growing steadily. According to Statista, the company’s net sales will reach $555.23 billion in 2021, up more than 32% from a decade ago. For the upcoming announcement, the consensus estimate for company sales is $151 billion, up 6.64% quarter on quarter and up 7.09% year over year. Conversely, Walmart’s earnings per share (EPS) fell short of analysts’ expectations due to an unusually high inflation environment that weighed on the margin mix and operating costs. The consensus estimate for EPS for the next quarter is $1.62, up 24.61% from the previous quarter but down nearly -9% from the year-ago quarter.
Unlike most analysts maintaining a “buy” rating, management’s outlook is relatively mixed. The team expects full-year net sales growth of 4.5%-5.0% (previously 4%) but flat earnings per share (previously expected mid-to-low single-digit growth).
Fig 3：
Home Depot reports sales and EPS versus analyst forecasts Source money.cnn
On the other hand, Home Depot had an exceptional 2021 global net sales of more than $151 million (up 14.4% compared to fiscal 2020). Ten years ago it was only $70.4 million. Market consensus for the company’s sales in its upcoming earnings announcement is $43.4 billion, up 11.57% sequentially and 5.60% year over year, respectively. Earnings per share are expected to reach $4.95, up 21% from the prior quarter and up 9.27% from the year-ago quarter.
The optimistic outlook is not without reasons – strong demand for home improvement projects, the company’s interconnected retail strategy and technology infrastructure, effective program execution to expand supply chains, technology investments, and digital enhancements. As long as supply chain dynamics remain healthy and the consumer spending environment remains positive, there shouldn’t be much of a problem for the company’s growth and development, but we should take into account the relevant economic data in the coming months, and bear in mind that it’s too early to draw conclusions.
Technical Analysis:
#Walmart shares are still trading between low and median analyst estimates ($117, $140). Within this range, minor resistance lies at $133.81, which is the FR38.2% level extending from the April 2022 high ($160.74) to the May 2022 low ($117.17). If the bull market breakout is successful, the 100-day SMA will be the dynamic resistance to watch, followed by analysts’ median estimate ($140), which is also the FR50.0% level. Otherwise, $127.45 will be a minor support to watch. A break below this level could suggest that the bears are likely to extend to analysts’ low expectations ($117).
#HomeDepot shares have risen steadily since rebounding from a June 2022 low of $264.10. To date, the company’s share price remains supported above the 100-day SMA, a psychological level (or FR23.6% extending from the December 2021 high ($420.29) to the June 2022 low ($264.10)). If the bullish momentum persists, the nearest resistance to watch is $323.80, followed by $342.20 and $360.60. In terms of indicators, the MACD is still hovering above 0, while the RSI and Stochastics show that buyers are still in control (not overbought yet).
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Larince Zhang
Market Analyst
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