- Fed’s Jackson Hole gathering, Powell speech, Nvidia earnings in focus.
- Dick’s Sporting Goods is a buy with earnings beat on deck.
- Macy’s shares will struggle amid weak results and guidance miss.
- Looking for more actionable trade ideas to navigate the current market volatility? InvestingPro Summer Sale is on: Check out our massive discounts on subscription plans!
Wall Street's main indices ended mostly lower on Friday, capping off a losing week as the stock market's August struggles continue amid worries that the Federal Reserve will keep interest rates higher for longer.
For the week, the blue-chip Dow Jones Industrial Average declined 2.2%, while the benchmark S&P 500 and technology-heavy Nasdaq Composite fell 2.1% and 2.6%, respectively, to notch their third straight week of losses.
The Nasdaq has now fallen 7.2% in the past three weeks, its worst three-week drop since late December.
Next week is expected to be another eventful one as attention turns to the Fed’s annual Economic Policy Symposium, which will take place in Jackson Hole, Wyoming, starting on Thursday.
Investors will scrutinize a speech from Fed Chair Jerome Powell on Friday for clues on the outlook for interest rates.
Currently, financial markets see an 89% chance of the Fed holding rates at current levels at its September meeting, according to Investing.com’s Fed Rate Monitor Tool.
Elsewhere, on the earnings docket, there are just a handful of corporate results due as Q2 earning season winds down, including market darling Nvidia (NASDAQ:NVDA) on Wednesday. The chip designer has had a spectacular rally on expected growth in artificial intelligence, nearly tripling in value year-to-date.
Regardless of which direction the market goes next week, below I highlight one stock likely to be in demand and another which could see fresh downside.
Remember though, my timeframe is just for the week ahead, August 21 - August 25.
Stock To Buy: Dick’s Sporting Goods
I believe Dick’s Sporting Goods' (NYSE:DKS) stock will outperform in the week ahead, with a potential breakout to a new record high on the horizon, as the athletic-gear retailer’s second quarter earnings will surprise to the upside, in my opinion, thanks to favorable consumer demand trends.
Dick’s is scheduled to release its Q2 update ahead of the opening bell on Tuesday, August 22 at 7:30AM ET, and results are likely to have benefitted once again from solid demand for sports equipment and apparel from its loyal customer base and a disciplined inventory approach.
Market participants expect a sizable swing in DKS shares following the print, as per the options market, with a possible implied move of roughly 7% in either direction.
Consensus estimates call for the Pittsburgh, Pennsylvania-based sporting goods store chain - which operates over 850 retail locations across the U.S. - to post earnings per share of $3.81, improving 3.5% from EPS of $3.68 in the year-ago period.
In the last 90 days, analysts have raised their EPS estimates 11 times, according to an InvestingPro survey, while 12 of the analysts surveyed downwardly revised their earnings forecast.
Meanwhile, Dick’s revenue is forecast to rise 4.2% year-over-year to $3.24 billion, reflecting robust sales growth across its athletic apparel and footwear product categories.
Q2 same-store sales - which are expected to increase 2.5% compared to last year - will likely top estimates thanks to resilient consumer demand for sports and recreation clothing and equipment even as overall discretionary spending wobbles.
Despite a challenging environment for retailers, Dick’s has beaten Wall Street’s top and bottom-line estimates for 12 consecutive quarters, underlining the strength of its underlying business and strong execution across the company.
As such, it is my belief that Dick’s management will provide an upbeat outlook for the current quarter as it remains well-positioned for the all-important back-to-school shopping season despite a difficult environment for retailers.
DKS stock closed at $146.62 on Friday, within sight of its all-time high of $152.61 reached on March 9. At current levels, Dick’s has a market cap of around $12.6 billion, making it the nation’s largest sporting goods retail chain.
Shares are up 21.9% year-to-date, much better than the 7.2% gain recorded by the SPDR® S&P Retail ETF (NYSE:XRT), which tracks a broad-based, equal-weighted index of U.S. retail companies in the S&P 500.
Stock To Sell: Macy’s
Sticking with retailers, I anticipate Macy’s (NYSE:M) shares will suffer a challenging week ahead, with a potential revisit to recent lows on the way, as the struggling department store chain will miss estimates for second quarter earnings in my view and provide a weak outlook.
Macy’s Q2 financial results are due before the U.S. market opens on Tuesday, August 22, at 6:55AM ET, and are expected to reveal a substantial slowdown in both profit and sales growth as shoppers cut back spending on luxury fashion items and discretionary goods due to the difficult macroeconomic climate.
Options trading implies a roughly 12% swing for M stock after the update drops.
Underscoring several headwinds Macy’s faces amid the current backdrop, an InvestingPro survey of analyst earnings revisions points to mounting pessimism ahead of the report, with all 13 analysts slashing their EPS estimates in the last 90 days.
Macy’s is forecast to deliver a profit of $0.14 a share for the June quarter. If confirmed, that would be down 86% from earnings per share of $1.00 in the year-ago period, amid the negative impact of rising operating expenses, and higher cost pressures on its business.
Revenue is projected to decline 8.8% annually to $5.11 billion due to a combination of various macro and fundamental headwinds, such as elevated inflationary pressures, higher interest rates, as well as lingering inventory and supply chain woes.
The dismal results will likely lead Macy’s management to cut its full-year sales and profit forecasts. As such, I believe Macy’s CEO Jeff Gennette will strike a cautious tone in his guidance to reflect decreasing operating margins as the retailer cuts prices to clear unsold spring and summer inventory from its shelves.
M stock - which fell to a 2023 low of $12.80 on June 1 - closed at $15.12 on Friday. At current levels, the New York City-based department store retailer has a market cap of $4.1 billion.
Shares have lagged the year-to-date performance of the broader market by a wide margin in 2023, tumbling 26.8%. In comparison, Macy’s department store peers Nordstrom (NYSE:JWN) and Kohl’s (NYSE:KSS) have seen their stock surge 18.4% and 11.4% respectively over the same period.
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Disclosure: At the time of writing, I am long on the Dow Jones Industrial Average via the SPDR Dow ETF (DIA). I also have a long position on the Energy Select Sector SPDR ETF (NYSE:XLE) and the Health Care Select Sector SPDR ETF (NYSE:XLV). Additionally, I am short on the S&P 500, Nasdaq 100, and Russell 2000 via the ProShares Short S&P 500 ETF (SH), ProShares Short QQQ ETF (PSQ), and ProShares Short Russell 2000 ETF (RWM). I regularly rebalance my portfolio of individual stocks and ETFs based on ongoing risk assessment of both the macroeconomic environment and companies' financials. The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.