- CPI inflation, retail sales, producer prices, and retailer earnings will be in focus this week.
- Walmart stock is a buy with Q3 earnings beat on deck.
- Home Depot shares are a sell amid weak profit, sales growth outook.
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Wall Street rallied on Friday, with the tech-heavy Nasdaq Composite posting its biggest one-day percentage gain since May 26, amid growing doubts that the Federal Reserve will raise interest rates again.
For the week, the blue-chip Dow Jones Industrial Average rose about 0.7%, the benchmark S&P 500 climbed 1.3%, and the Nasdaq jumped 2.4%.
The week ahead is expected to be another busy one as investors continue to gauge whether the Fed might be done raising rates to control inflation and when the central bank could start cutting rates.
On the economic calendar, most important will be Tuesday’s U.S. consumer price inflation report for October, which is forecast to show headline annual CPI cooling to 3.3% from the 3.7% increase seen in September.
The CPI data will be accompanied by the release of the latest retail sales figures as well as a report on producer prices, will help fill out the inflation picture.
As of Sunday morning, financial markets see a 90% chance of the Fed holding rates at current levels at its December meeting, according to Investing.com’s Fed Rate Monitor Tool, and just a 10% chance of a quarter-percentage point rate hike.
Meanwhile, the reporting season’s last big week sees earning roll in from several retailers such as Walmart, Home Depot, Target (NYSE:TGT), Macy’s (NYSE:M), TJX Companies (NYSE:TJX), and Ross Stores (NASDAQ:ROST). Other notable companies include Cisco (NASDAQ:CSCO), Palo Alto Networks (NASDAQ:PANW), Alibaba (NYSE:BABA), JD.com (NASDAQ:JD), Tencent (HK:0700) Holdings (OTC:TCEHY), and Xpeng (NYSE:XPEV).
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, Monday, November 13 - Friday, November 17.
Stock to Buy: Walmart
After closing at a new record high on Friday, I expect Walmart's (NYSE:WMT) stock to outperform in the week ahead as the big-box retailer’s third quarter earnings and revenue will easily top estimates in my view thanks to favorable consumer demand trends.
Despite a challenging environment for retailers, I believe Walmart is also poised to deliver upbeat guidance as it continues to benefit from ongoing changes in frugal consumer behavior amid the current economic backdrop of persistently high inflation and recession fears.
The Bentonville, Arkansas-based discount retailer - which operates more than 5,000 stores across the U.S. - is scheduled to deliver its Q3 update before the U.S. market opens on Thursday at 7:00AM ET.
According to the options market, traders are pricing in a swing of around 4% in either direction for WMT stock following the report.
Walmart is expected to post earnings per share of $1.52, a tad higher than EPS of $1.50 in the year-ago period. Analysts have raised their EPS estimates 24 times in the past 90 days, according to an InvestingPro survey, compared to only four downward revisions.
Meanwhile, revenue is seen rising 3.7% annually to $159.0 billion, reflecting strong grocery sales and as more shoppers sign up for its Walmart+ membership program.
Q3 same-store sales as well as e-commerce spending - which grew 6.4% and 24% respectively in the last quarter - will likely top estimates as U.S. consumers flock to its stores and website to place more orders for store pickup and delivery.
As such, I believe Walmart CEO Doug McMillion will provide solid guidance for the months ahead as the discount retailer continues to gain market share in the food and grocery business.
Walmart has topped Wall Street’s top line expectations for 14 consecutive quarters dating back to Q1 2020, while missing profit estimates only twice in that span, demonstrating the strength and resilience of its business.
WMT stock ended Friday’s session at $166.19, its highest ever closing price. With a market cap of $447 billion, Walmart is the world’s most valuable brick-and-mortar retailer and the 13th largest company trading on the U.S. stock exchange.
Walmart has stood apart from other retailers, with shares rising 17.2% year-to-date. That compares to a 1% decline 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: Home Depot
Staying in the retail sector, I believe shares of Home Depot (NYSE:HD) will suffer a disappointing week ahead, with a potential revisit to recent lows on the horizon, as the home improvement retailer’s latest earnings will likely reveal a sharp slowdown in both profit and sales growth due to the uncertain economic climate.
Home Depot’s third quarter financial results are due ahead of the opening bell on Tuesday at 6:00AM EST and are likely to take a hit from weakening demand for its assortment of building materials and construction products from both professional and do-it-yourself customers.
Market participants expect a sizable swing in HD shares following the print, as per the options market, with a possible implied move of roughly 5% in either direction.
Underscoring several near-term headwinds Home Depot faces amid the current backdrop, analysts have cut their EPS estimates nine times in the three months leading up to the earnings update, as per an Investing Pro survey, to reflect a 14% drop from their initial profit forecasts.
Wall Street sees the Atlanta, Georgia-based retail heavyweight earning $3.78 a share, falling 10.9% from EPS of $4.24 in the year-ago period, due to the negative impact of rising operating expenses and higher cost pressures.
Meanwhile, revenue is forecast to decline 3.2% year-over-year to $37.7 billion, reflecting weaker traffic throughout the quarter and softer consumer spending on big-ticket discretionary goods and products.
U.S. same-store sales - which slumped 2% in Q2 - will likely miss estimates again as Americans cut back spending on home improvements and renovations in the face of high interest rates, elevated inflation, and lingering recession fears. If that is in fact reality, it would mark the fourth straight quarter of declining comparable U.S. sales.
Looking ahead, it is my belief that Home Depot executives will strike a cautious tone in their forward guidance given the ongoing slowdown in the housing market, which is a key driver of spending for the home improvement sector.
HD stock closed Friday’s session at $291.59, not far from a 2023 low of $274.26 reached late last month. At current valuations, Home Depot has a market cap of $291.6 billion, making it the largest U.S. home improvement retailer.
Shares have lagged the year-to-date performance of the broader market by a wide margin so far in 2023, falling 7.7% in contrast to the S&P 500’s 15% gain.
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Disclosure: At the time of writing, I am long on the S&P 500, and the Nasdaq 100 via the SPDR S&P 500 ETF (SPY (NYSE:SPY)), and the Invesco QQQ Trust ETF (QQQ). I am also long on the Technology Select Sector SPDR ETF (NYSE:XLK). 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.