S&P 500 Forecast: Index drops on Monday open with Target, Walmart, Home Depot earnings ahead
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- S&P 500 has given up 2.72% so far in August. The index is in an official short-term downtrend.
- Target, Walmart and Home Depot release quarterly earnings this week.
- US Census Bureau reports July US Retail Sales on Tuesday.
- S&P 500 opened Monday lower alongside other major indices.
The S&P 500 traded off about 0.1% in the first half hour on Monday. The NASDAQ Composite pulled back a similar level, while the Dow Jones Industrial Average contracted 0.2%.
The S&P 500 declined last week for its second week in a row, down 0.31%. Monday, August 7 witnessed an impressive rally, but the optimism quickly dissolved as mega cap stocks pulled back amid higher US Treasury yields. Friday’s hotter-than-expected Producer Price Index (PPI) did not help things as traders digested data showing that inflation was more sticky than previously thought.
This is the week of retail for S&P 500 earnings in the second calendar quarter. Home and construction retail giant The Home Depot (HD) reports earnings on Tuesday. Home Depot earnings will then be followed by Target (TGT) and Walmart (WMT) on Wednesday and Thursday, respectively. Tuesday will also see the release of US Retail Sales for July, which nicely complements the market’s theme. Analysts expect the data to improve at a better clip than June.
S&P 500 News: Home Depot, Walmart, Target, Cleveland-Cliffs
Some of the biggest names in US retail report results this week. First up is The Home Depot. The dividend stalwart is expected to unveil earnings of $4.44 (“you’re crazy for this one, Rick”) on revenue of $42.19 billion.
That is quite the pullback from a year ago when The Home Depot earned $5.05 per share on sales of $43.79 billion, and analysts (all 28) have uniformly revised their profit expectations lower for the hardware chain over the past three months. In the first quarter (quarter ending in April), The Home Depot missed revenue consensus by more than $1 billion.
Target is yet another retailer that has faced obstacles this past year, including plenty of organized theft that is estimated to be costing the company in the hundreds of millions annually. This quarter Wall Street expects adjusted earnings to arrive at $1.43 per share on $25.26 billion. This would amount to a great increase coming off Target’s profitability lowpoint the same quarter one year ago but would still mean a fall from year-ago revenues of $26.04 billion or a 3% decline.
Earnings beats from either The Home Depot or Target could usher in more optimism for the entire S&P 500 basket of stocks as big box retailers have caused plenty of negativity this year. Target’s share price is down 13.6% YTD, while The Home Depot has only recently reached positive territory but still underperformed the S&P 500 index by a large margin.
Walmart is the major retailer thought to have the best chance of beating earnings this week. Analyst were mixed in their earnings revisions this quarter, but a slight majority raised its outlook on Sam Walton’s empire. Consensus for the second quarter comes to $1.70 in earnings per share on revenue of $159 billion – not bad but still down from $1.77 one year ago.
In addition, much talk has been generated from US Steel’s (X) dismissal of Cleveland-Cliffs (CLF) acquisition offer. On Sunday, the latter said its cash and stock offer amounting to approximately $32.53 a share made on July 27 was rebuffed by US Steel.
The admission has still caused US Steel’s share price to jump more than 27% in Monday’s premarket as the company said it had begun a strategic review and might be open to further offers. Cleveland-Cliffs management says the combined company would become a top-ten global steel producer and create synergies of $500 million.
US Retail Sales forecast for uptick in July
The US Census Bureau will unveil July US Retail Sales an hour before Tuesday’s market open. Quite optimistically, Wall Street consensus is expecting a 0.4% MoM rise in retail consumption growth, double the 0.2% figure from June. If the results are in line, expect Walmart, The Home Depot and Target, among others, to rally on the news.
Not as significant but still watched will be Thursday’s report on Initial Jobless Claims for the week ending August 11. Analysts expect 240K, slightly below the 248K uptick a week earlier.
Earnings of the week
Monday, August 14 - Rumble (RUM), SNDL (SNDL)
Tuesday, August 15 - Home Depot (HD), On Holding (ONON), and CAVA Group (CAVA).
Wednesday, August 16 - Cisco (CSCO), TJX Companies (TJX), Target (TGT), JD.com (JD)
Thursday, August 17 - Walmart (WMT), Applied Materials (AMAT), Ross Stores (ROST)
Friday, August 18 - Deere (DE), Palo Alto Networks (PANW)
What they said about the market – Jan Hatzius
Goldman Sachs’ revered chief economist Jan Hatzius wrote in a note on Monday that he does not expect the Federal Reserve to wait for a growth scare in order to begin cutting interest rates. This places his in the ever-enlarging "soft landing" camp. However, Hatzius went on record to say that those cuts are unlikely until the second quarter of 2024. That’s about 10 months away (but who’s counting?).
"We expect core PCE inflation to have fallen below 3% on a year-on-year basis and below 2.5% on a monthly annualized basis, and wage growth to have fallen below 4% year-on-year."
S&P 500 forecast
The S&P 500 is in a downtrend. It started on July 27, when the index caved after reaching the 4,590 to 4,637 resistance zone. Then last Wednesday, August 9, the 9-day Simple Moving Average (SMA) finally crossed below the 21-day SMA, and the index has continued to drift lower.
There is some historical support at 4,400, but more ample support exists at 4,300 and 4,325. That is the most likely entry point for bulls. If not, the 4,200 resistance level may turn into support as well.
The Relative Strength Index (RSI) has just crossed below 50, a level it has not seen since March. The daily chart RSI has not touched the accepted oversold level of 30 since last September, so it is unsurprising that the market has decided to hit the breaks. If short-term Treasury yields continue to drift higher, expect the index to experience a deeper pullback than otherwise.
S&P 500 daily chart
