Market Overview

The economic agenda of the week started with generally positive signals from Asia. A weekend trade deal fostered hopes of a fuller recovery from the shocks of this year, at least for the Asia-Pacific region, after 15 Asia-Pacific economies including China and Japan, agreed to reduce future tariffs. Meanwhile in Japan, the gross domestic product (GDP) gained 5.0% in Q3 versus Q2 2020, which was better than 4.4% expected by Bloomberg expert poll, also comparing to the previous quarter, during which the economy dropped 8.2%. A growth in the external demand component was at 2.9%, while the private consumption contributed to a 4.7% rise on its part. However, the capital expenditure component lost 3.4%, which could be pointing to some residual weakness.

China's growth momentum was seen to be maintained in October, according to a set of data released this morning. Industrial production rose by 1.8% since January and as much as 6.9% when compared with a pre-coronavirus period, according to year-on-year based readings. The actual figure for direct investment from abroad, following the agreements and contracts, including cash, materials and invisible capital, such as the labour service and technology, provided a significant 6.4% surplus over the last 12 months. Also, an internal fixed asset investment indicator measuring the change in the total spending on non-rural capital investments such as factories, roads, power grids or property rose 1.8% year-on-year vs 0.8% a month ago, and after seven months of decline since February.

All the above figures indicated an effective re-launch of the investment cycle in the second world's largest economy raising hopes for the similar pace of recovery in Western economies soon, after the safety of public communications would be supported by anti-covid vaccines soon. Many health experts in the United States are mentioning April, or even March, in this context, so that the second quarter of 2021 has a chance for not a "new normal" but more economically normal atmosphere in a traditional sense of the word.

For now, the number of new corona virus cases just spiked to almost 188,000 per day on November 13, which set a sad new record according to the U.S. national count, as total cases were crossing the 11-million mark across the country. However, the average number of fatal daily cases is far from the situation in spring. In Europe, Germany's economy minister Peter Altmaier warned on Sunday that the people would have to live with “considerable restrictions” for at least four to five months. Despite these facts, all major European stock indexes, like the German Xetra DAX or the French CAC40, are still holding stunningly high, perhaps preparing to rewrite their half-year peaks once again. Markets are trading on their own expectations for the future, not today's reality.

While European stocks are getting some extra financial attention due to the uncertainty on the transfer of power inside the U.S. political engine, the American S&P 500 broad market index futures were also trading above the 3600 landmark on Monday, at least during Asian and European sessions. In particular, some American-rooted big international retailers and shares of the banking sector have been gaining strong momentum over recent days. Moreover, the Chinese 4.3% year-on-year growth in retail sales was also a part of today's good tidings set, which may further add to a positive sentiment for worldwide retail networks as well. So, the biggest American store chains may well benefit from this, at least in terms of market projections for the future, despite the very possibility that U.S. retail sales figures, which due to be published this Tuesday, may be weaker than previous values.

It seems that some financial rotation from "big tech" stocks to more "simple" retailer companies may continue. This week's focus could highly likely be on the companies that are releasing Q3 reports, or just have risen quite well in price recently. Wal-Mart perfectly fits both criteria, as the shares of the U.S. biggest discount retailer gained 8.5% over the last two weeks and 28% since January, plus Wal-Mart will release its fiscal 2021 third-quarter earnings report tomorrow before the market opens. The analyst consensus anticipates equity per share (EPS) of $1.18 on revenue of $132.08 billion, plus a clear indication on the dividend yield at the current level of $2.16 per share, which now means almost 1.5% annually.

The retailer has been an obvious net beneficiary during the pandemic period as people stayed at home stockpiling grocery items and consuming more daily staples. In Q2, the e-commerce division made a robust growth when online sales jumped 97% from a year earlier, with a deal of pickup and delivery options exceeding an all-time high in total sales volumes. Saving money also became a strong trend as so many customers lost jobs or a part of their regular income, and Wal-Mart helped housekeepers with their program by offering a free-delivery service. Ongoing uncertainty on the U.S. government’s second stimulus package for the population could weigh on future sales, but the companies with a low average receipt amount, like Wal-Mart, usually keep or even improve their position in situations when families are on such a tight budget. The company's stock closed up on Friday at $150.54, which is its highest level ever.

Home Depot is also going to report its Q3 earnings on Tuesday, before the market’s opening bell. The home-improvement giant also benefited a lot from lockdowns in the first half of the year, as people were stuck in home isolation, and they spent more money on home renovations. Since the spring’s short plunge, Home Depot stocks have rebounded gaining more than 80%. Home Depot stocks have been trading in a relatively quiet and narrow range since August, mostly between $265 and $290 per share as rising expenses seemed to hurt the company’s margins and the peak spring and summer period of spending are seen to be subsiding for now. Selling, general and administrative costs jumped 26% in Q2, with Morgan Stanley’s Simeon Gutman noting, "the company is spending more than anticipated on virus-related costs and benefits". Thus, in the case of Home Depot, the report for the 3rd quarter could give further direction to the movement at least until Christmas.

In sharp contrast with Wal-Mart, Macy’s shares have been in a long-time spiralling downtrend since September 2016, and the Macy's department store chain was struggling to find new ways to win over shoppers all over that time. They were forced to reorganise the retail space of their stores, reducing the area, and to experiment with many other ideas. Macy’s reported a sharp year-over-year decline in both earnings and revenue for Q2 2020 top, and its next financial results would be reported ahead of Thursday’s open, November 19.

Consensus calls for a loss of $0.84 per share to widen from a loss per share of $0.81 in the previous quarter and compared to earnings per share of $0.07 in the year-ago period. Meanwhile, the revenue is averagely forecasted to drop nearly 25% from the same period a year earlier to $3.88 billion. Macy's shares suddenly jumped almost 33% in sync with other retailers after Pfizer's vaccine news last Monday, but then it lost about 75% of this surprising gain. Some part of Wall Street still believes in Macy's potential, so that Macy's share price rose 5.43% again on Friday. Investors will probably all keep an eye on Macy’s update regarding its in-store and online sales. Sales online and at Macy’s stores open for at least 12 months were down 35.1% in Q2. If online sales did not significantly improve, then Macy's shares may remain under additional pressure or even revisit its record lows instead of climbing higher. 

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Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.