- Walmart, Target earnings are leading indicators of sector losses, even broader market
- Yields change course but still weigh on equities
- Dollar could correct
- Bitcoin on the verge of a further slump
After last week’s ‘ was triggered by major retailers such as (NYSE:) and (NYSE:) disappointing more significantly on earnings than expected, investors now nervously await a slew of additional earnings reports from an array of high profile vendors in the upcoming trading week. These include (NASDAQ:), Best Buy (NYSE:), Nordstrom (NYSE:), Macy’s (NYSE:), Dollar Tree (NASDAQ:), Ulta Beauty (NASDAQ:), Dick’s Sporting Goods (NYSE:) and Dollar General (NYSE:).
Last Wednesday, after Target substantially missed on expectations, the stock opened sharply lower and was then hammered by investors— losing almost 25% for the day, dropping an additional 3.2% on Thursday morning before reversing. For its part, Walmart, which reported on Tuesday, lost almost 19% of value through Thursday before reversing higher on Friday. It was the biggest selloff for the retailers since 1987, demonstrating that companies can’t grow profits amid spiking inflation as some stakeholders had hoped.
The giant retailers’ results were doubly shocking after US showed resilience in April, increasing 0.9%. So why did those retail giants lose money if consumer spending increased? Turns out the data was misleading; it hadn’t been inflation-adjusted. The “real” data it turns out, was negative for the second month in a row.
Amazon (NASDAQ:) plunged too as investors realized the e-commerce behemoth faces the same economic hazards as Target and Walmart. But the retail rout didn’t end there. Other large retailers, all slated to report this coming week also slumped after Target’s report, most losing 10% or more of value, underperforming the , where most of these companies are listed.
Macy’s slumped 10.7% while Best Buy dropped 10.8% as both topped out with their prices falling below their 200-week MA.
Best Buy completed a downward-sloping H&S top, which occurs when bulls are too weak to support an asymmetrical right shoulder.
While the obvious connection between last week’s Walmart and Target disappointments and this coming week’s retailer earnings reports is already unnerving traders, the poor results might also be a leading indicator for potential shifts in other segments and sectors as well.
Supermarkets and consumer staples providers could benefit from inflation as higher prices should theoretically boost sales figures while banks show wider profit margins when interest rates rise. And of course, retailers can raise prices more than necessary amid high inflation.
Still, Walmart’s results highlight the dark side of inflation. If the world’s largest retailer, known as famously cost-conscious, is seeing its profits hit by inflation, shouldn’t markets expect even worse from less frugal competitors, not to mention from sectors that don’t traditionally benefit from inflation?
Indeed, how will tech companies fare if retail is struggling? The technology industry tends to take the brunt of a market selloff after growth stocks maximize potential. Last week, the tech-heavy was down 4.75%, underperforming among the major averages, dragged lower by shares of Apple (NASDAQ:) which were off 6.4% and Tesla’s (NASDAQ:) 13.7% plunge.
The S&P 500 Index lost 3% of value while the 30-component , which lists mostly blue chip value stocks, retreated 2.9%, outperforming during the inflation pressured selloff. Last week’s surprise was the small cap , which handily beat the competition, declining a mere 1.1%, even after going head to head with technology shares since the Fed turned hawkish over the last six months.
There is, however, some evidence of support for tech stocks.
The found support by the previous week’s weekly hammer, suggesting a potential return move to retest the downward-sloping H&S top.
But the Russell 2000 looks even more promising for a bear market rally.
Last week’s trading formed a High Wave candle, raising the odds for a turnaround, enhanced by the preceding weekly bullish hammer. The weekly price dipped for a second week but closed above the 200 weekly MA. Therefore, we wouldn’t be surprised if the small-cap benchmark tested the top of its Falling Channel before hammering the 200 WMA again.
US Treasury yields fell for a second straight week, for the first time since November.
Yields completed a small upward-sloping H&S top, finding support by the 50 DMA. Conversely, the 50 WMA crossed above the 200 WMA, triggering a Golden Cross on the weekly chart.
While equities fell from record highs at the beginning of 2022 amid rising yields, stocks are now being pressured by falling yields.
This apparent contradiction is explained by understanding what’s motivating bond investors. At the start of the year rising interest rates rendered then-current payouts insufficient, while the outlook for weighed on stock prices. Now, however, yields are falling as investors rotate into bonds for safety ahead of a perceived recession and to avoid value loss on equity positions.
Moreover, bonds suffered their worst quarter in over four decades (incidentally, matching the highest in more than forty years). Some insist the bond market had its worst 12-month period since 1842, providing bond investors an excellent reason to buy the dip. When investors pull money from stocks to invest in bonds, they increase supply and decrease demand.
The fell for the week, developing a potentially small H&S, matching 10-year yields.
The greenback’s MACD, RSI, and ROC all suggest the H&S will complete. However, we can only call it after a downside breakout. This price level is essential, as it is in the area of the 2020 highs. To be clear, this would be a correction within an uptrend.
In a mirror image, rose for the week, trimming half of the previous week’s losses.
The yellow metal’s bounce came after it neared the uptrend line in place since March 2021.
fell for a seventh straight week, its longest consecutive drop ever.
The cryptocurrency has developed a pennant, bearish after the preceding steep slump. A downside breakout will cement the massive double top, targeting $10K.
climbed for the fourth week, despite recession fears along with the ongoing uncertainty regarding Russian crude as the embargo against that country’s commodity supply continues.
WTI may be about to complete an accumulation area, signaling .
The Week Ahead
All times listed are EDT
4:00: Germany – : expected to retreat to 91.4 from 91.8.
12:15: UK –
3:30: Germany – : seen to dip to 54.0 from 54.6.
4:30: UK – : previously printed at 55.8.
10:00: US – : probably fell to 750K from 763K.
12:20: US –
14:00: Eurozone –
22:00: New Zealand – : forecast to rise 50 basis points to 2.00%
2:00: Germany – : to remain flat at 0.2% QoQ.
8:30: US – : forecast to halve to 0.6% from 1.2%.
10:30: US – : predicted to surge to 1.383M from -3.394M.
14:00: US –
8:30: US – : anticipated to remain flat at -1.4%.
8:30: US – : expected to retreat to 213K from 218K.
8:30: Canada – : to tick down to 2.0% from 2.1%.
21:30: Australia – : seen to fall to 1.0% from 1.6%.
8:30: US – : likely to have slipped lower, to 4.9% in April from 5.2% YoY.