After making very strong gains the previous week on a lower-than-expected inflation reading, US stocks were on the back foot again.
Initial excitement that the apparent easing of inflationary pressures would lead to a pivot on interest rates from the US Federal Reserve faded after hawkish comments from Fed officials.
There were also mixed signs on the health of the consumer economy, with department store chain Target giving a very gloomy assessment of the outlook.
Pharmaceutical firm Moderna (MRNA:NASDAQ) was in demand as it said its new Covid booster shot performed better against the BA.5 Omicron subvariant of the virus.
Meme stock Bed Bath & Beyond (BBBY:NASDAQ) moved higher as it agreed a deal with bondholders which eased some of the pressure on a distressed balance sheet.
Finally speciality chemicals business Albemarle (ALB:NYSE) endured a significant sell-off along with other lithium-related stocks as investment bank Goldman Sachs (GS:NYSE) issued a bearish forecast for supply and demand of the element, used in batteries.
WALMART/TARGET
A busy retail reporting week saw shares in sector heavyweights Walmart (WMT:NYSE) and Target (TGT:NYSE) head in oppositive directions. Groceries-to-general merchandise goliath Walmart rose on forecast-beating third quarter results (15 November) showing a better-than-expected 8.7% rise in revenues to $152.8 billion and adjusted earnings per share (EPS) of $1.50 more than 13% above the consensus estimate.
US sales grew 8.2% on a like-for-like basis thanks to further grocery market gains, while international sales were up 7.1% to $25.3 billion, driven by double-digit growth at its Mexican subsidiary.
Walmart also raised its full year operating earnings guidance to a decline of 6.5% to 7.5% from 9% to 11% previously and announced a new $20 billion share buyback, while investors were also heartened by chief executive Doug McMillon's comment that the company had ‘significantly improved’ its inventory position.
Bossed by well-regarded retailer Brian Cornell, Target tumbled as a massive third quarter earnings (16 November) miss ahead of Christmas rattled Wall Street. The Minneapolis-based retailer's adjusted EPS of $1.54 was almost 50% down year-on-year and well shy of the $2.17 called for by analysts.
Target also lowered its fourth quarter sales and earnings guidance based on ‘softening sales and profit trends that emerged late in the third quarter and persisted into November’, with US consumers prioritising essentials and pruning back spending on clothing, electronics and home goods.
Cornell warned sales and profit trends softened ‘meaningfully’ in the latter weeks of the quarter, with shopping behaviour ‘increasingly impacted by inflation, rising interest rates and economic uncertainty’.
NVIDIA
In a week when Micron Technology (MU:NASDAQ) cut its growth targets and sliced capital spending it was always going to be tough for microchip stocks to do well, but investors should note the changing tone of analyst around Nvidia (NVDA:NASDAQ), arguably the semiconductor stock more closely followed by investors than any other.
Analysts at Summit Insights upgraded the stock to Buy after third-quarter earnings, citing developing tailwinds for 2023, primarily in the context of a new product cycle. JPMorgan told clients in a note that ‘while the business is impacted by multiple near-term headwinds, we believe those are beginning to abate and should set Nvidia well for growth acceleration in calendar year 2023,’ the analysts said in a client note.
Similarly, Morgan Stanley analysts believe the numbers are bottoming. Gaming is now de-risked while they expect data centre growth to resume from here.
‘Our contacts both within the company and at customers suggest a high degree of confidence that Hopper starts to drive growth, as we see more substantial volume in the April quarter; despite overall headwinds in cloud, we expect stronger sequential growth beyond this quarter,’ Morgan Stanley told clients in a note.
Many investors may read these comments as analysts calling the bottom for Nvidia, even if the stock drifted about 1% lower over the past week. We'll see.
GAP
US clothing retailer Gap Inc (GPS:NYSE), which owns the Gap, Old Navy and Banana Republic brands, delivered a positive surprise after the market closed on 17 November, beating expectations for the third quarter.
Consensus forecasts were for revenues of $3.8 billion and an adjusted EPS (earnings per share) loss of 1c, with analysts half-expecting the firm to miss both estimates after it disappointed last quarter.
In the event, the company posted revenues of $4.04 billion, up 2% on last year, and adjusted earnings of 70c per share against 27c last year.
Gap shares climbed 8% after-market, having gained more than 5% during Thursday's session.
The gross margin fell sharply due to the firm having to heavily discount old stock in order to reduce its inventories, which ballooned 34% in the first quarter and 37% in the second quarter.
Once again, Banana Republic was the best-performing brand with sales up 8% in the third quarter after a similar increase the previous quarter, while Gap brand sales were flat compared with a 7% decline and Old Navy, the most problematic of the group's brands, posted a 2% increase against a 15% decline previously.
Chief financial officer Katrina O'Connell gave a cautious outlook for the full year, guiding the market to expect a mid-single digit decline in fourth-quarter sales.
