Breaking News
Investing Pro 0
👀 Bezos, Buffett & Berkowitz: What's in Their Portfolios? Unlock Data

Week Ahead: Investors Brace For Retail Sector Earnings; Dollar Could Correct

By Investing.com (Pinchas Cohen/Investing.com)Market OverviewMay 22, 2022 13:42
ng.investing.com/analysis/week-ahead-investors-brace-for-retail-sector-earnings-dollar-could-correct-113107
Week Ahead: Investors Brace For Retail Sector Earnings; Dollar Could Correct
By Investing.com (Pinchas Cohen/Investing.com)   |  May 22, 2022 13:42
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
DX
-0.16%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
BTC/USD
+3.08%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
ULTA
-13.37%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
DKS
+2.49%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
US10Y...
-0.10%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
DG
+0.73%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
  • Walmart, Target earnings are leading indicators of sector losses, even broader market
  • Yields change course but still weigh on equities
  • Dollar could correct
  • Bitcoin on the verge of a further slump

After last week's 'retail apocalypse' was triggered by major retailers such as Target (NYSE:TGT) and Walmart (NYSE:WMT) disappointing more significantly on earnings than expected, investors now nervously await a slew of additional earnings reports from an array of high profile vendors in the upcoming trading week. These include Costco (NASDAQ:COST), Best Buy (NYSE:BBY), Nordstrom (NYSE:JWN), Macy’s (NYSE:M), Dollar Tree (NASDAQ:DLTR), Ulta Beauty (NASDAQ:ULTA), Dick’s Sporting Goods (NYSE:DKS) and Dollar General (NYSE:DG).

Last Wednesday, after Target substantially missed on expectations, the stock opened sharply lower and was then hammered by investors— losing almost 25% for the day, dropping an additional 3.2% on Thursday morning before reversing. For its part, Walmart, which reported on Tuesday, lost almost 19% of value through Thursday before reversing higher on Friday. It was the biggest selloff for the retailers since 1987, demonstrating that companies can't grow profits amid spiking inflation as some stakeholders had hoped.

The giant retailers' results were doubly shocking after US retail sales showed resilience in April, increasing 0.9%. So why did those retail giants lose money if consumer spending increased? Turns out the data was misleading; it hadn't been inflation-adjusted. The "real" data it turns out, was negative for the second month in a row.

Amazon (NASDAQ:AMZN) plunged too as investors realized the e-commerce behemoth faces the same economic hazards as Target and Walmart. But the retail rout didn't end there. Other large retailers, all slated to report this coming week also slumped after Target's report, most losing 10% or more of value, underperforming the S&P 500 Index, where most of these companies are listed.

Macy's slumped 10.7% while Best Buy dropped 10.8% as both topped out with their prices falling below their 200-week MA.

BBY Weekly TTM
BBY Weekly TTM

Best Buy completed a downward-sloping H&S top, which occurs when bulls are too weak to support an asymmetrical right shoulder.

While the obvious connection between last week's Walmart and Target disappointments and this coming week's retailer earnings reports is already unnerving traders, the poor results might also be a leading indicator for potential shifts in other segments and sectors as well.

Supermarkets and consumer staples providers could benefit from inflation as higher prices should theoretically boost sales figures while banks show wider profit margins when interest rates rise. And of course, retailers can raise prices more than necessary amid high inflation.

Still, Walmart's results highlight the dark side of inflation. If the world's largest retailer, known as famously cost-conscious, is seeing its profits hit by inflation, shouldn't markets expect even worse from less frugal competitors, not to mention from sectors that don't traditionally benefit from inflation?

Indeed, how will tech companies fare if retail is struggling? The technology industry tends to take the brunt of a market selloff after growth stocks maximize potential. Last week, the tech-heavy NASDAQ was down 4.75%, underperforming among the major averages, dragged lower by shares of Apple (NASDAQ:AAPL) which were off 6.4% and Tesla's (NASDAQ:TSLA) 13.7% plunge.

The S&P 500 Index lost 3% of value while the 30-component Dow Jones, which lists mostly blue chip value stocks, retreated 2.9%, outperforming during the inflation pressured selloff. Last week's surprise was the small cap Russell 2000, which handily beat the competition, declining a mere 1.1%, even after going head to head with technology shares since the Fed turned hawkish over the last six months.

There is, however, some evidence of support for tech stocks.

NDX Weekly
NDX Weekly

The NASDAQ 100 found support by the previous week's weekly hammer, suggesting a potential return move to retest the downward-sloping H&S top.

But the Russell 2000 looks even more promising for a bear market rally.

RUT Weekly
RUT Weekly

Last week's trading formed a High Wave candle, raising the odds for a turnaround, enhanced by the preceding weekly bullish hammer. The weekly price dipped for a second week but closed above the 200 weekly MA. Therefore, we wouldn't be surprised if the small-cap benchmark tested the top of its Falling Channel before hammering the 200 WMA again.

US 10-year Treasury yields fell for a second straight week, for the first time since November.

UST 10Y Daily
UST 10Y Daily

Yields completed a small upward-sloping H&S top, finding support by the 50 DMA. Conversely, the 50 WMA crossed above the 200 WMA, triggering a Golden Cross on the weekly chart.

While equities fell from record highs at the beginning of 2022 amid rising yields, stocks are now being pressured by falling yields.

This apparent contradiction is explained by understanding what's motivating bond investors. At the start of the year rising interest rates rendered then-current payouts insufficient, while the outlook for rate hikes weighed on stock prices. Now, however, yields are falling as investors rotate into bonds for safety ahead of a perceived recession and to avoid value loss on equity positions.

Moreover, bonds suffered their worst quarter in over four decades (incidentally, matching the highest inflation in more than forty years). Some insist the bond market had its worst 12-month period since 1842, providing bond investors an excellent reason to buy the dip. When investors pull money from stocks to invest in bonds, they increase supply and decrease demand.

The dollar fell for the week, developing a potentially small H&S, matching 10-year yields.

Dollar Daily
Dollar Daily

The greenback's MACD, RSI, and ROC all suggest the H&S will complete. However, we can only call it after a downside breakout. This price level is essential, as it is in the area of the 2020 highs. To be clear, this would be a correction within an uptrend.

In a mirror image, gold rose for the week, trimming half of the previous week's losses.

Gold Weekly
Gold Weekly

The yellow metal's bounce came after it neared the uptrend line in place since March 2021.

Bitcoin fell for a seventh straight week, its longest consecutive drop ever.

BTC/USD Daily
BTC/USD Daily

The cryptocurrency has developed a pennant, bearish after the preceding steep slump. A downside breakout will cement the massive double top, targeting levels below $10K.

Oil climbed for the fourth week, despite recession fears along with the ongoing uncertainty regarding Russian crude as the embargo against that country's commodity supply continues.

Oil Daily
Oil Daily

WTI may be about to complete an accumulation area, signaling higher prices ahead.

The Week Ahead

All times listed are EDT

Monday

4:00: Germany – Ifo Business Climate Index: expected to retreat to 91.4 from 91.8.

12:15: UK – BoE Gov Bailey Speaks

Tuesday

3:30: Germany – Manufacturing PMI: seen to dip to 54.0 from 54.6.

4:30: UK – Manufacturing PMI: previously printed at 55.8.

10:00: US – New Home Sales: probably fell to 750K from 763K.

12:20: US – Fed Chair Powell Speaks

14:00: Eurozone – ECB President Lagarde Speaks

22:00: New Zealand – RBNZ Interest Rate Decision: forecast to rise 50 basis points to 2.00%

Wednesday

2:00: Germany – GDP: to remain flat at 0.2% QoQ.

8:30: US – Core Durable Goods Orders: forecast to halve to 0.6% from 1.2%.

10:30: US – Crude Oil Inventories: predicted to surge to 1.383M from -3.394M.

14:00: US – FOMC Meeting Minutes

Thursday

8:30: US – GDP: anticipated to remain flat at -1.4%.

8:30: US – Initial Jobless Claims: expected to retreat to 213K from 218K.

8:30: Canada – Core Retail Sales: to tick down to 2.0% from 2.1%.

21:30: Australia – Retail Sales: seen to fall to 1.0% from 1.6%.

Friday

8:30: US – Core PCE Price Index: likely to have slipped lower, to 4.9% in April from 5.2% YoY.

Week Ahead: Investors Brace For Retail Sector Earnings; Dollar Could Correct
 

Related Articles

Alfonso Peccatiello
Will the U.S. Default? By Alfonso Peccatiello - May 23, 2023

The US is dangerously close to triggering its debt ceiling limit, yet markets seem very relaxed. The 2011 episode shows us how political incentive schemes can instead drag...

Week Ahead: Investors Brace For Retail Sector Earnings; Dollar Could Correct

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email