- ISM PMI surveys, Fed speakers, more retailer earnings will dictate the market’s direction in the week ahead.
- Tesla shares are a buy with the highly anticipated ‘Investor Day’ in focus.
- Macy’s stock is set to underperform amid weak earnings and cautious guidance.
Stocks on Wall Street tumbled on Friday, with the major averages suffering their biggest weekly drop of 2023 amid fears interest rates will need to stay higher for longer to control inflation.
For the week, the blue-chip Dow Jones Industrial Average fell 3%, its fourth straight losing week. Meanwhile, the benchmark S&P 500 and the tech-heavy Nasdaq Composite sank 2.7% and 3.3%, respectively, in what was their worst weekly performance since early December. The small-cap Russell 2000 slumped 2.9%, notching its second negative week in three.
After an upbeat January, stocks have pulled back this month as investors braced for the possibility of more aggressive rate hikes from the Federal Reserve after the latest batch of economic data pointed to a resilient economy and still-high inflation.
The week ahead is expected to be busy as investors continue to gauge the outlook for interest rates, the economy and inflation.
On the economic calendar, most important will be the Institute for Supply Management's (ISM) manufacturing survey index scheduled for Wednesday, followed by the ISM service-sector PMI on Friday.
Fed speakers will be back on the circuit with speeches from the Fed's Christopher Waller, Austan Goolsbee, and Lorie Logan on the agenda.
Elsewhere, notable companies set to report earnings include retail heavyweights Target (NYSE:TGT), Best Buy (NYSE:BBY), Lowe’s (NYSE:LOW), Costco (NASDAQ:COST), Nordstrom (NYSE:JWN), Kohl’s (NYSE:KSS), Burlington Stores (NYSE:BURL), Ross Stores (NASDAQ:ROST), and Victoria's Secret (NYSE:VSCO).
In addition, the earnings schedule is active with tech names like Salesforce (NYSE:CRM), Zoom (NASDAQ:ZM), Snowflake (NYSE:SNOW), Okta (NASDAQ:OKTA), Workday (NASDAQ:WDAY), Splunk (NASDAQ:SPLK), and Broadcom (NASDAQ:AVGO) all due to report. Rivian (NASDAQ:RIVN), Nio (NYSE:NIO), and Li Auto (NASDAQ:LI) are also on the docket.
Regardless of which direction the market goes, below we highlight one stock likely to be in demand and another which could see further downside.
Remember though, our timeframe is just for the upcoming week.
Stock To Buy: Tesla
I believe Tesla (NASDAQ:TSLA) shares are likely to enjoy increased buying activity in the week ahead as the electric vehicle giant holds its highly anticipated Investor Day event, on Wednesday, March 1.
The event will be live-streamed from Tesla’s Texas headquarters and will serve as a positive catalyst for the stock in my opinion.
Most of the focus will be on CEO Elon Musk, who has promised to present his "Master Plan 3" which will be about “explaining how we get to a fully sustainable energy future for Earth."
Tesla's first Master Plan, revealed in August 2006, presented the company's goal, which was to build a wide range of affordable electric vehicles. Musk then revealed part two of his Master Plan in 2016, in which he focused on full self-driving (FSD) capability and battery energy storage systems.
A product announcement would be unlikely, but I anticipate hearing fresh details about the EV maker’s longer-term growth strategy and expansion plans, lower-cost next-generation vehicle platform, its own battery manufacturing efforts, as well as capital allocation plans.
The EV pioneer may also provide further specifics on the timetable for the long-awaited Cybertruck. The oft-delayed EV truck model will begin "early production" in mid-year, according to Musk, and is expected to arrive in late 2023.
Other key topics sure to be discussed are anticipated to be Tesla’s FSD autonomous driving applications, energy storage initiatives, charging network revenue potential, and the Optimus AI robot.
TSLA shares ended Friday’s session at $196.88, earning the company a market cap of roughly $623 billion. At its current valuation, Tesla is the world’s largest automaker, bigger than names such as Toyota (NYSE:TM), Daimler (ETR:MBGn), General Motors (NYSE:GM), and Ford (NYSE:F).
Shares have roared back in the early part of 2023 following last year’s brutal selloff, surging nearly 60% year-to-date. Despite its recent turnaround, the stock remains roughly 53% away from its November 2021 record high of $414.50.
Stock To Sell: Macy’s
Macy’s (NYSE:M) stock is set for a difficult week in my view, as the department store chain’s latest financial results will likely reveal a sharp slowdown in both profit and revenue growth due to a challenging operating environment.
Macy’s fourth-quarter update will be released ahead of the opening bell on Thursday, March 2, and earnings are likely to take a hit from a combination of several macroeconomic and fundamental headwinds, such as higher interest rates, slowing growth, lingering inflationary pressures, and ongoing inventory and supply chain woes.
Unsurprisingly, an InvestingPro survey of analyst earnings revisions points to mounting pessimism ahead of the report, with analysts cutting their EPS estimates 14 times over the last 90 days, compared to zero upward revisions.
Consensus calls for the New York City-based department store retailer to post Q4 earnings of $1.59 per share, as per Investing.com, plunging 35.1% from EPS of $2.48 in the year-ago period, due to the negative impact of rising operating expenses, higher cost pressures and declining operating margins.
Meanwhile, revenue for the holiday quarter is forecast to fall 4.6% year-over-year to $8.27 billion, underscoring the several challenges the retailer faces amid the uncertain economic environment which is seeing consumers cut back spending on discretionary items as their disposable income shrinks.
As such, I believe Macy’s CEO Jeff Gennette will strike a cautious tone in his outlook for the rest of 2023 and warn that consumer spending would remain under pressure, echoing similar comments made by industry heavyweights Walmart (NYSE:WMT), and Home Depot (NYSE:HD) last week.
Based on moves in the options market, traders are pricing in a possible implied move of 3% in either direction in Macy‘s stock following the update.
M stock closed at a seven-week low of $20.57 on Friday, which was its weakest level since Jan. 9. At its current valuation, Macy’s has a market cap of about $5.6 billion.
Shares - now down 0.4% on the year - fell sharply in February amid the broader market turmoil, losing 13% during the month to erase their year-to-date gains.
Disclosure: At the time of writing, I am short on the S&P 500 and Nasdaq 100 via the ProShares Short S&P 500 ETF (SH) and ProShares Short QQQ ETF (PSQ). 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.