- Walmart, target earnings are leading indicators of industry losses, even broader market
- Yields change course but still weigh on equities
- The dollar could correct
- Bitcoin on the brink of another slump
After last week’ was sparked by major retailers such as (NYSE:) and (NYSE:) disappointing more than expected on earnings, investors are now nervously awaiting a series of additional earnings reports from a range of leading suppliers over the next trading week. . These include (NASDAQ:), Best Buy (NYSE:), Nordstrom (NYSE:), Macy’s (NYSE:), Dollar Tree (NASDAQ:), Ulta Beauty (NASDAQ:), Dick’s Sporting Goods (NYSE:) and Dollar General (NYSE:).
Last Wednesday, after Target significantly missed expectations, the stock opened sharply lower and was then hammered by investors – losing almost 25% for the day, losing another 3.2% on Thursday morning before reversing . For its part, Walmart, which released its report on Tuesday, lost nearly 19% of its value through Thursday before rising again on Friday. It was the biggest sale for retailers since 1987, demonstrating that companies cannot boost profits amid soaring inflation, as some stakeholders had hoped.
Results for giant retailers were doubly shocking after the US showed resilience in April, rising 0.9%. So why have these retail giants lost money if consumer spending has increased? It turns out that the data was misleading; it had not been adjusted for inflation. It turns out that the “true” data was negative for the second month in a row.
Amazon (NASDAQ:) also took a dive when investors realized the e-commerce giant faced the same economic risks as Target and Walmart. But the retail rout didn’t stop there. Other major retailers, all expected to report this coming week, also fell after Target’s report, with most losing 10% or more in value, underperforming on , where most of these companies are listed.
Macy’s fell 10.7% while Best Buy fell 10.8% as both peaked with their prices falling below their 200-week MA.
Best Buy completed a downward sloping H&S top, which occurs when the bulls are too weak to support an asymmetrical right shoulder.
While the clear link between last week’s Walmart and Target disappointments and retailer earnings reports for the week ahead already has traders worried, the poor results could also be a leading indicator of potential shifts in other segments. and sectors as well.
Supermarkets and providers of basic consumer goods could benefit from inflation, as higher prices should theoretically boost sales figures while banks post wider profit margins when interest rates rise. And of course, retailers can raise prices more than necessary in a high inflation environment.
Yet Walmart’s results highlight the dark side of inflation. If the world’s largest retailer, renowned for its cost-conscious reputation, sees its profits hit by inflation, shouldn’t markets expect even worse from less frugal competitors, not to mention sectors that traditionally do not benefit from inflation?
Indeed, how will tech companies fare if retail is struggling? The tech industry tends to bear the brunt of a market sell-off after growth stocks maximize their potential. Last week, heavy tech fell 4.75%, underperforming among major averages, dragged down by shares of Apple (NASDAQ:) which fell 6.4% and the 13 .7% Tesla (NASDAQ:).
The S&P 500 lost 3% of its value while the 30 component, which lists mostly blue-chip value stocks, fell 2.9%, outperforming during the inflationary sell-off. Last week’s surprise was small cap, which easily beat the competition, down just 1.1% even after battling tech stocks since the Fed turned hawkish over the past six months.
There is, however, evidence of support for tech stocks.
Support found by the weekly hammer from the previous week, suggesting a potential move back to retest the downward sloping H&S top.
But the Russell 2000 looks even more promising for a bearish rally.
Last week’s trading formed a High Wave candle, increasing the chances of a reversal, bolstered by the previous weekly bullish hammer. The weekly price fell for a second week but closed above the weekly MA of 200. Therefore, we wouldn’t be surprised if the small cap benchmark tested the top of its descending channel before hammering down to new the 200 WMA.
US Treasury yields fell for a second consecutive week, for the first time since November.
Yields completed a small upward sloping H&S top, finding support by the 50 DMA. Conversely, the 50 WMA moved above the 200 WMA, triggering a golden cross on the weekly chart.
While equities have fallen from record highs in early 2022 amid rising yields, equities are now under pressure from falling yields.
This apparent contradiction stems from an understanding of what drives bond investors. At the start of the year, rising interest rates made payments then outstanding insufficient, while the outlook weighed on share prices. Now, however, yields are falling as investors turn to bonds for protection ahead of a perceived recession and to avoid a loss in value on equity positions.
In addition, bonds suffered their worst quarter in more than four decades (equaling the highest in more than forty years). Some insist the bond market had its worst 12-month stretch since 1842, giving bond investors a great reason to buy the dip. When investors take money from stocks to invest in bonds, they increase supply and decrease demand.
The fell for the week, developing a potentially small H&S, matching 10-year yields.
The greenback’s MACD, RSI, and ROC all suggest that the H&S will end. However, we can only call it after a downside breakout. This price level is critical, as it is in the area of the 2020 highs. To be clear, this would be a correction in an uptrend.
In a mirror image, rose for the week, halving losses from the previous week.
The yellow metal’s rebound came after it approached the uptrend line in place since March 2021.
fell for a seventh consecutive week, its longest consecutive decline on record.
The cryptocurrency has developed a pennant, bearish after the previous sharp decline. A break down will cement the massive double top, targeting $10,000.
climbed for the fourth week, despite recession fears as well as continued uncertainty over Russian crude as the embargo on that country’s raw material supplies continues.
WTI may be close to completing an accumulation zone, signaling .
The week ahead
All times listed are EDT
Monday
4:00 a.m.: Germany – : is expected to fall to 91.4 from 91.8.
12:15 p.m.: United Kingdom –
Tuesday
3h30: Germany – : seen plunging to 54.0 from 54.6.
4:30 p.m.: United Kingdom – : previously printed at 55.8.
10:00 a.m.: United States – : probably dropped to 750K from 763K.
12:20 p.m.: United States –
2 p.m.: Euro zone –
10 p.m.: New Zealand – : is expected to increase by 50 basis points to 2.00%
Wednesday
2:00 a.m.: Germany – : remain stable at 0.2% Q/Q.
8:30 a.m.: United States – : is expected to halve to 0.6% from 1.2%.
10:30 a.m.: United States – : is expected to rise to 1.383M from -3.394M.
2 p.m.: United States –
Thusday
8:30 a.m.: United States – : should remain stable at -1.4%.
8:30 a.m.: United States – : should retreat to 213K from 218K.
8:30 am: Canada – : to go down to 2.0% from 2.1%.
9:30 p.m.: Australia – : seen falling to 1.0% from 1.6%.
Friday
8:30 a.m.: United States – : likely to have slipped lower, to 4.9% in April, from 5.2% year-on-year.
