Market Overview

19 May 2021

Why the Market May Go Sideways Even After Full Confidence Returns

Stock markets are seen to be keeping sideway movements after last week's shake-up with a happy-end style rebound. Both the U.S. and the European indexes tried their best to build on the progress in the first half of the day on Tuesday, but failed to break last Friday's peak levels and, therefore, they changed at least an intraday sentiment to the slightly downside direction today. 

What's going on? Shares of many companies may not be ready to move smoothly up the trajectory, similar to a straight line, without more noticeable dips on the road. The fact is that when the quotes quickly rise, like they did at the very end of last week, people are mostly set up to "hold" tactics. They may not have any major problems to just "hold", but it is unlikely that the same masses of traders are eager to add more volumes of the same shares at a more expensive price. To change the market mood from "hold" to "buy more even at higher prices", it may take a considerable amount of time, and this amount of time could be considered to be several weeks at least. 

Those who picked up the assets of some issuers several days before on the correction dips are very unlikely to sell these securities soon. They might be ready to keep some cheap stocks, such as Alibaba or Boeing, which have fallen in price considerably over the last couple of months. People may not sell these shares at a 20-30% higher range as they realise there is a chance that such unique prices may simply no longer exist in the post-pandemic market. Well, either the prices of such special stocks may be slightly lower soon, but during a relatively short period until the economic recovery will gather momentum. 

For many other stocks, including big techs but not limited to that sector, the mood of the investors' majority may be rather different. For example, the idea to buy immediately more Amazon shares at a rather expensive price of $3300 or $3400 may look riskier in the mid-term, after the fact that the crowd was recently afraid that the same shares could fall below $2900. Despite the fact that Amazon has not yet reached down to any prices below $3100, people may prefer to take a rest on those assets now, or they may fight it with tooth and nail with their own desires to stow a trunk with more assets. It's not a reasonable decision for many to do things in a rush just a week after they feared that the market would fall even deeper, and that's why the flat market may be formed for some time. However, the same people, or even all the trader's crowd, may be quickly emboldened if and when the next absolute maximum of all times is rewritten. Of course, this may happen later but also it will not necessarily lead to an immediate new wave of purchases. Most of the market is not obliged to act synchronously with new highs, even a clearly positive signal may work as a go-ahead for the near future. 

Put that analysis of a broad market aside, the fundamental background has not remarkably changed for the majority of market segments or even generally improved after the financial reports of major U.S. retailers such as Walmart and Macy's. Now retailers look better than the market as a whole. Damaged by a reduction in floor space during the pandemic, Macy's supermarket network even exceeded the average forecasts of Bloomberg analysts showing a positive Q1 2021 result. It generated a profit of $0.39 per share instead of the expected losses of about the same size, as well as a higher revenue of $4.71 billion against the expected $4.34 billion. That helped to maintain a slow but steady eight-week recovery for Macy's stocks, which are trading above the level of $19 per share. 

Walmart topped Wall Street's quarterly sales estimates by far, providing the revenue of more than $138.3 billion vs the average expert poll figures of $132.2 billion. But more importantly , Walmart was previously criticised and partly sold after its Q4 2020 report when the profit was limited because of strong discount programs for customers. And now Walmart's equity per share for Q1 2021 at $1.69 is much better than the average expert estimates of just $1.21. Walmart's stocks soared as high as $144.5 at one point, when the daily gain exceeded 4%, and as a result, trading hours were closed yesterday at $141.91, but also with an excess of more than 2% from the closing price before the financial release on Monday. 

Shoppers are back in stores after lockdown limitations ease and government stimulus cheques have been cashed. Visits to Walmart and popular Home Depot furniture and decor improvement stores in April grew by 21.7% and 23.6% respectively, according to Placer.ai, a data firm that tracks consumer's traffic. "The increased level of vaccinations boosted store traffic, an encouraging sign as consumers move toward a post-pandemic lifestyle and start to spend more for in-person activities, travel and events," Macy's CEO Jeff Ganette said on a conference call to discuss earnings. Walmart CEO Doug McMillon was talking about similar trends, as his company became the first major world retailer to stop its mandatory mask rule for shoppers. That move may encourage even more store visits soon. 

The shares of Home Depot lost about 1% in price yesterday, as many results were already bought before on expectations in course of a 15-month rally, but Home Depot's corporate report was really brilliant, with its $3.86 profit per share on revenue of $37.5 billion, best quarter ever after Q2 2020 when a lot of inhabitants moved into new houses, usually of a smaller size to save some money when millions of people gave up some part of their regular income because of lockdowns. Home Depot shares were traded at about $225 in February 2020 before the impact of the pandemic, soared at more than $345 at the very peak of this May 2021, and are now just a little bit above $315. But even if the price may go to some lower levels after such a great rally, it could be highly likely to be a temporary effect. More big players of this sector, including Target corporation which is the eighth-largest discount retailer in the United States, Lowe's which specialises in home improvement and TJX off-price department store will also report today.

 

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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.

 

Material posted here is solely for information purposes and reliance on this may lead to losses. Past performances are not a reliable indicator of future results. Please read our full disclaimer.

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