Market Overview

18 August 2021

Stocks Have a Lack of Coordination After Q2 Reports of Walmart and The Home Depot

As markets are mostly steady on Wednesday, anticipating the U.S. Federal Reserve minutes, which probably would not contain any defining signs for policy changes but may cause some usual after-volatility, a week of corporate reports from major retailers have already made some preliminary discrepancy into the overall sentiment. 

The Home Depot, which is Atlanta-based and the largest home improvement and furniture shopping network in the United States, is still very successful amidst the pandemic crisis time. However, its shares initially dropped more than 4.5% immediately after Wall Street's open yesterday, as the fresh second quarter report unambiguously missed the crowd's hopes. The price reached as low as $316.61 per share compared with more than $335 at Monday's close, but then the stocks of the company recovered to above the $320 area. 

Same-store sales dropped in Home Depot shopping places for the first time in two years, while do-it-yourself furniture projects also tapered off, the company's CEOs remarked. However, all the listed shortfalls are here in combination with pretty good figures of the all-time record of $4.53 equity per share (EPS) on also the record revenue of $41.12 billion. The only problem could be seen to be the average expectations of the investment community. According to Refinitiv, they were formally very close to those actual values amounting to $4.42 of EPS on revenue of $40.48 billion. Another point was that most of the wonderful figures were already embedded in the previous price rally, from the area below $300 during the previous two months. Now, for the next quarter, the same expert polls are waiting for the EPS of just $3.24 per share on revenue of $33.75 billion, which may put the Home Depot shares under some midterm pressure. 

Walmart stores are on the other end of the spectrum. Its report did not only show a bright current situation, with the all-time record EPS of $1.78 on revenue of $141.05 billion, which happened to be much higher than the average Wall Street's estimates of just $1.56 per share on $136.3 billion of revenue. Shoppers coming out of lockdown bought more clothes, travel gear and back-to-school merchandise. The pace of Walmart's online sales growth slowed sharply to 6% only from 37% in the first quarter, but even here it's still a growth. Overall, Walmart reported its biggest ever online sales growth of 97% year-on-year as people were eager to use its quick delivery services to order essential goods during the pandemic, but now their loyalty will probably shift to  more off-line purchases. In this context, the number one retailer in the world increased its annual same-store sales forecast which was the move well received by the market. The crowd immediately elevated Walmart stocks to their new annual peak of $152.50 per share, and it finished the session as high as $150.70, even when an intraday correction wave covered most of the market for a while. 

A real opportunity to touch the $153.50 absolute peak, which Walmart prices have already managed to visit in November last year, has been most likely prevented for now only by generally weak market's impressions yesterday regarding official retail sales indicators across the country. The U.S. retail sales fell 1.1% in July, month by month, compared to a revised 0.7% growth in June, including core retail sales also falling by 0.4%. But even when the data was released on Tuesday, the damage to the market's mood was only partial, and it didn't hold the S&P 500 broad market index from covering the initial losses quickly. 

A similar situation occurred yesterday with the S&P 500 index, which gradually tried to digest a cumulative effect of the published reports made by all different retailers. The index first fell to the area below 4,420 points, but closed the session relatively high again at 4,448. Although this is lower than Monday's previous high of 4,480 points, it still indicates a high ability of most traders to buy back any dips as soon as they appear. 

Some analysts may logically feel that a one-time fall in retail sales may even be quite natural after the long period of too high numbers on sales. People cannot spend their money at an increasing pace forever, setting new records when it comes to their expenses month by month. After all, after having bought a lot of necessary things in the spring and early summer, they could also satisfy their basic needs for a while, and they could begin to be more cautious now due to warnings about the Delta variant of the coronavirus. But this does not mean that the trend towards a decline in consumer activity confirmed last month by the Michigan report has to be long lasting. "Since April, there has been a consistent pattern of upward revisions to retail sales, so it's possible that the momentum will improve with the next release," Jefferies banking group headquartered in New York said in a note. 

Alibaba and Tencent shares fell by almost 5% yesterday, but it was hardly due to global factors. Fresh pressures were put on those big Chinese platforms from a national State Administration for Market Regulation, which published a draft of new laws aimed at limiting their ability to create closed-circuit ecosystems on the web. 

A similar view in the style of a half-full glass seems also to be confirmed by the figures just published today in a report from Target Corporation, another prominent American retail chain. It is remarkable that Target raised its forecast for the rest of the year alongside Walmart, after topping market's expectations with its second-quarter sales. The company said it was also boosted by strong back-to-school spending taking into account the money granted by the White House beforehand to families for this purpose. Even if Target or some other retailers turned out to be overbought to some extent in a very overheated market, it is unlikely that all the set of the listed reports could be perceived as bearish signals by the market's optimistic majority. Even realists seem to look more like moderate optimists this summer.

 

Disclaimer:

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

Lysakov Sergey
Market Focus

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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