Stocks ended Friday lower, despite upbeat economic data showing price inflation and in increase in demand for products and services, following drastic declines at the height of the coronavirus pandemic.
While the upbeat consumer-price data is an encouraging sign that the worst of the pandemic is, perhaps, in the rearview mirror, the news overshadowed by the frustration investors felt over the fact that Congress and the White House have reached a stalemate on the next round of fiscal stimulus. As such the market ended Friday’s session somewhat directionless.
The Dow Jones Industrial Average eked out 0.12% gain to to close at 27,931.02. The S&P 500 index shed 0.58 points, or 0.02% to end the session at 3,372.85, while the Nasdaq Composite Index snapped a two-day winning streak to close at 11,019.30 after losing 23.20 points. That said, all three benchmarks still managed to book weekly gains. Higher costs for a range of products and services, including gasoline, apparel and electricity helped the consumer-price index to rise to seasonally-adjusted rate of 0.6% in July, according to the Labor Department.
Given that this is the second consecutive month of an increase, it suggests that the economy is at a turning point, leveling off from the devastation the coronavirus has unleashed on retailers and consumer confidence. The upbeat retail data comes at a critical time since the market will get earnings reports from some notable retailers, including Walmart (WMT), Target (TGT) and and Home Depot (HD). Their results and guidance may help answer the prevailing question which is, what will it take to power this market higher?
When factoring the improved unemployment rate (albeit still high), rising consumer confidence would suggest that the worst of the recession might be behind us, thus supporting the historic rally stocks have enjoyed from the March lows. Can the run continue? Here are this week’s names I’ll be watching.
Home Depot (HD) – Reports before the open, Tuesday, Aug. 18
Wall Street expects Home Depot to earn $3.62 per share on revenue of $34.18 billion. This compares to the year-ago quarter when earnings came to $3.17 per share on revenue of $30.84 billion.
What to watch: Home Depot stock is up 30% year to date, compared with the 4.4% rise in the S&P 500 index. The home improvement giant has established a strong track record for beating consensus estimates, while profits have topped Street forecast in every quarter over the past five years. This, however, was pre-pandemic. Can the streak continue? The environment has created an opportunity for Home Depot to take market share over the next two to three years, according to various Wall Street analysts. What’s more, encouraging consumer data, showing a 0.6% rise in retail sales would seem to support the optimism in HD shares, particularly given that this is the second consecutive month of increases, following declines in March, April and May due to the pandemic.
Walmart (WMT) – Reports before the open, Tuesday, Aug. 18
Wall Street expects Walmart to earn $1.25 per share on revenue of $135.25 billion. This compares to the year-ago quarter when earnings came to $1.27 per share on revenue of $130.38 billion.
What to watch: Expectations are high heading into Walmart’s earnings report as many analysts project the retail giant to secure market share gains not only for its physical stores, but also from its expanded e-commerce capabilities. Walmart has taken a page out of Amazon’s (AMZN) playbook by growing revenue and sacrificing EPS in the process through further “investment” in the customer fulfillment expenses. In the process, its digital revenue have shown tremendous growth, averaging 35% annualized gains over the past five quarters. For the stock to keep rising, however, on Tuesday Walmart must show not only sustained e-commerce growth, but also improved margins and same-store-sales. Walmart should continue to benefit from the investments it has made in technology and fulfillment, accelerated by trends of smaller rivals closing their doors, in some cases, for good.
Nvidia (NVDA) – Reports after the close, Wednesday, Aug. 19
Wall Street expects Nvidia to earn $1.97 per share on revenue of $3.65 billion. This compares to the year-ago quarter when earnings came to $1.24 per share on revenue of $2.58 billion.
What to watch: Shares of the graphic chip powerhouse has gone on an impressive run, surging 60% over the past six months, while rising 96% year to date, compared with respective gains of 0.22% and 4.4% in the S&P 500 index. As is often the case, valuation concerns have emerged for Nvidia bulls. But that’s nothing new for Nvidia. Five straight quarters of earnings beats have gotten investors more optimistic about Nvidia’s growth markets for graphics cards used not only in video games, but also with the company’s exposure to areas such as the datacenter, autonomous driving, artificial intelligence, among others. Nonetheless, Nvidia’s guidance on Thursday will be the key factor in whether the stock will go higher or succumb to profit taking.
Alibaba (BABA) – Reports before the open, Thursday, Aug. 20
Wall Street expects Alibaba to earn $1.98 per share on revenue of $21.25 billion. This compares to the year-ago quarter when earnings came to $1.77 per share on revenue of $14.45 billion.
What to watch: The Chinese e-commerce and cloud giant has a lot to prove, particularly with better-than-expected results coming with from its U.S.-based rival Amazon (AMZN). But given the devastation the pandemic has had on China, the attention will shift to Alibaba’s guidance given the long head start China has had on the U.S. with its re-opening process. BABA the stock, meanwhile, has not participated in the market rally, unlike its FAANG rivals, suggesting that the market expects some headwinds. There is also concern about the escalating U.S. and China tech war and uncertainty about Chinese companies being listed on U.S. stock exchanges without reform. On Thursday the company must give investors a reason to believe the stock has room to run and can remain on a sustained path to recovery.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.