Investors took to the sidelines this week after the S&P 500 index approached its 200-day moving average - a measure of long-term resistance - at around the 4,300-point level.
US markets rallied earlier this month as most of the recent economic data from jobless claims to housing starts has come in softer than expected and investors start to hope the Federal Reserve may pause its interest rate hikes and even reverse them.
However, next week brings the annual Jackson Hole Economic Symposium where the New York Fed chair traditionally opens proceedings.
There is a real danger that the market's strength and the lack of volatility works against it, encouraging chair Powell to ‘poke the bear’ and spell out that rates are going up and staying up for as long as it takes to stamp down on inflation, which might send stocks south again.
WALMART, HOME DEPOT, TARGET AND BED BATH & BEYOND
The US second quarter reporting season has been bookended by several updates from the retail sector.
Unsurprisingly given cost-of-living pressures these corporate updates revealed material pressure on earnings, though Walmart's (WMT:NYSE) and Home Depot (HD:NYSE) numbers received a favourable reception on 16 August as they came in better than feared.
For the three months to 31 July Walmart saw earnings per share of $1.77 versus the $1.62 which had been forecast, while revenue hit $152.9 billion compared with the $150.8 billion which had been pencilled in.
Perhaps more significantly the company pointed to evidence of higher income households trading down to its stores, giving it enough reason to raise its full-year guidance.
Home Depot's second quarter earnings per share came in at $5.05 against the consensus estimate of $4.94 while revenue also beat at $43.79 billion against an expected $43.36 billion. The Atlanta-headquartered firm pointed to continuing strength in the home improvement market despite weaker property prices and maintained its own 2022 guidance.
Walmart rival Target (TGT:NYSE) saw its shares come under pressure on 17 August as it reported a 90% year-on-year fall in quarterly profit and missed expectations as it sold off unwanted inventory.
Somewhat surprisingly it maintained its forecast for full-year revenue in the low to mid-single digits and an operating margin of 6%, compared with the 1.2% seen in the second quarter.
Meme stock and homewares chain Bed, Bath & Beyond (BBBY:NASDAQ) saw its shares more than double in price at the start of the week, but the stock then came under pressure as billionaire investor Ryan Cohen disclosed plans to sell his stake after the strong rally for the shares.
GEO GROUP
Most people had never heard of Michael Burry before the film The Big Short hit screens worldwide in 2015. He was the maverick hedge fund manager, played by Christian Bale, who bet against the US housing market in the run-up to the global financial crisis and won.
Burry's Scion Asset Management is making a bold bet again, this time dumping its entire equity portfolio and retaining just one stock, the relatively obscure Geo Group (GEO:NYSE), which runs prisons and mental health facilities. Geo has been shunned by investors for years but, presumably, now on a single-digit PE, Scion sees potential for the firm in a US economy teetering on recession.
Burry said in June that the S&P 500 could fall 50%, a scary thought for most ordinary investors. But among his succeses, he's also been wide of the mark. For example, he previously predicted Tesla (TSLA:NASDAQ) stock would lose 90% of its value, yet it has continued to soar. Perhaps his crystal ball needs a polish.
So, before investors flog portfolios and reinvest in tin hats, baked beans and torches, remember that Burry has form as a perma-bear - he even tweets under the handle @cassandra, a nod to the priestess in Greek mythology cursed to share true prophecies but never to be believed.
