US stocks enjoyed one of their best weeks of the year spurred on by better-than-expected inflation (14 November) and weaker than anticipated unemployment claims on 15 November.
The S&P 500 gained just over 3% and the Nasdaq Composite was up 3.8% but the economically sensitive Russell 2000 stole the show after jumping 4.7%.
Both sets of economic data reinforce the ‘Goldilocks’ narrative that the economy is slowing enough to bring inflation back towards target but not so much that it threatens a recession.
Consumer prices for October were flat month on month but increased 3.2% on an annual basis, both better than economists had forecast.
Core CPI which excludes volatile food and energy prices, and which is closely watched by the Fed dropped to a two-year low of 4%, prompting investors to conclude the central bank may be finished with its hiking cycle.
Interest rate futures quickly priced in rate cuts starting in March 2024 while government bond yields fell (prices up) across the board providing further good news for stocks.
BIG-BOX RETAILERS
US big-box retailers painted a similar picture of the US consumer in their most recent earnings reports, with demand for 'non-essentials' trailing everyday spending.
Home improvement chain Home Depot (HD:NYSE) posted third-quarter revenue and earnings which beat Wall Street’s lowered expectations thanks to an uptick in digital sales which helped offset lower footfall in its stores.
The company saw ‘continued customer engagement in smaller projects’ and strong sales of roofing, insulation and power tools to the professional market, but noted ‘pressure’ in bigger-ticket discretionary items.
Meanwhile, shares in discount retailer Target (TGT:NYSE) leapt more than 17% after its third-quarter revenue and earnings blew past market forecasts as sales of food and beauty products offset generally weaker discretionary spending.
Chief executive Brian Cornell noted customers were delaying purchases of everything bar the essentials and cautioned the fourth quarter would look much the same.
In contrast, shares in rival retailer Walmart (WMT:NYSE) dropped sharply despite better-than-expected third-quarter results as analysts and investors homed in on the firm’s downbeat outlook.
Having hit an all-time high earlier in the week, shares in the US’s largest grocer tumbled more than 7% after chief finance officer John Rainey said since October the firm had seen ‘some trends in the business that made us pause and kind of rethink the health of the consumer’.
PALO ALTO
The cybersecurity giant can probably count itself lucky with its guidance trim largely let off the hook by investors, the stock falling a modest 5% on the shock news. Predicted billings in the current quarter to 31 January 2024 of $2.36 billion is $50 million shy of $2.41 billion previous estimates, while full year fiscal 2024 billings face a $200 million haircut.
Palo Alto (PANW:NASDAQ) now anticipates $10.75 billion of annual billings, nearly 2% below the $10.96 billion consensus.Other high-growth tech firms have faced far bigger share price blows recently after snipping a few percentage points off growth guidance; Paycom (PAYC:NYSE), Trade Desk (TTD:NASDAQ) and Align Technology (ALGN:NASDAQ) were all savaged more than 20%.
Blaming the softening on the ‘cost of money’ after sustained interest rate hikes seems plausible and may offer investors optimism that 2024 will bring better demand dynamics after an otherwise blistering 2023 for the stock – it’s rallied 80%.
ENPHASE ENERGY
Enphase Energy (ENPH:NASDAQ) has seen its shares skyrocket over the past week gaining over 22% to sit comfortably at the $91 mark. Lucky if you are a new shareholder in the Californian-based energy technology company, unlucky if you have held shares for a little longer.
Over the past month Enphase shares have fallen 26% after it reported a slump in third quarter sales and said that demand for its solar equipment and batteries has dropped.
Third quarter revenue sank 13% to $551.1 million, short of forecasts. Earnings per share came in at $0.80, below analysts’ estimates. So why the rollercoaster ride for shareholders?
Enphase and other solar stocks like Solaredge Technologies (SEDG:NASDAQ) have been hit hard by the rise in US interest rates which have raised homebuyer costs and made adding solar projects far less affordable.
Recent US inflation numbers for October were flat causing the spike Enphase’s share price. The ‘jury is out’ as to whether this will see Enphase’s business pick up in the future.
