The markets were mostly down this week. The Dow fell 2.19%, the S&P 500 lost 1.98%, and the Nasdaq Composite decreased 2.27%.
Earnings Reports
Walmart shares jumped 2% as the retailer exceeded investor expectations in both revenue and earnings per share in Q2, partly because of a 24% increase in E-commerce sales. The company also raised its full-year forecasts in net sales and earnings, as it expects to benefit from stronger consumer spending amid lowering inflation rates. The inventory also dropped 5% year over year after Walmart previously struggled to clear excess merchandise.
Target’s sales dropped 5% during Q2, marking the first decline since 2017. This was in part driven by concerns about inflation, as well as a boycott against the retailer’s Pride merchandise. With the majority of sales coming from discretionary items instead of groceries, Target is more susceptible than rivals such as Walmart to changes in spending habits of consumers. Additionally, high interest rates bring more hesitancy to buying items that would require credit, such as electronics. Despite these factors, the company exceeded expectations in net profit in Q2 while cutting its year-long profit projections. Shares rose 3% following the report.
Home Depot reported $42.9 billion in sales during Q2, down 2% from 2022 but still exceeding analyst expectations. However, similarly to other retailers selling discretionary products, high interest rates and concerns about inflation have increased hesitancy in purchasing big-ticket items; transactions exceeding $1000 decreased 5.5% from Q1. Additionally, high mortgage rates have led to lowered sentiment among home-builders, which is causing a 1.8% decrease in furniture sales.
Cisco Systems reported $15.2 billion in revenue during the quarter, almost a 14% jump from 2022. AI-related orders accounted for $500 million. The company, and CFO Scott Herren see the field as an area of potential growth. Additionally, the revenue from its software sector grew 17% year over year. This expanded software business should help Cisco’ smooth its earnings. . Despite these factors, the company forecasts relatively slow growth in fiscal 2024. After an initial fall, shares are up 2.32% this week.
H&R Block soared 11.7% this week after the tax-preparer exceeded revenue and earnings estimates and raised dividends by 10.3% to $0.32 per share. This brings the dividend yield up to 3.2%, above industry average. Analysts believe these dividend payments are covered by cash flow and earnings, and are therefore sustainable.
July Retail Sales Report
Retail sales were stronger than expected in July, potentially indicating a “soft landing” instead of a recession. The Commerce Department reported a seasonally adjusted increase of 0.7% during the month, above expectations and the best figure since January. Most categories saw increases in sales, with the notable exceptions of furniture, electronics, appliances, and motor vehicles. Import prices were largely unchanged except for fuel, which rose 3.6%. Export prices increased 0.7%, but remained down 7.9% from the previous year. Overall, consumers continued to spend despite high interest rates and inflation.
Federal Reserve Meeting Minutes
The Fed meeting minutes reinforced investor perceptions about the stance of the Fed. During the July meeting, in which the Fed unanimously voted to hike interest rates, a “couple” of members voiced objections fearing a recession. This largely reinforced beliefs that the Fed will keep the rates steady during the September meeting, as it appears that hawkish sentiment within the Fed may be moderating. Analysts put a nearly 90% chance on the Fed maintaining current rates at the September meeting, according to Reuters.
However, strong economic indicators may prompt further future rate hikes. The July sales report indicated continued spending by consumers, and some models like GDPNow from the Atlanta Fed project a 5.8% annualized rate of growth in the US economy in Q3. Fed members remain steadfast in their commitment to containing inflation and raising rates further if this spending and growth continues. Many investors have been moving money into US treasury bonds as the 10-year yield rose to its highest point since October 2022.
Blue Shield California Ends CVS Partnership
CVS Health shares fell around 10% after insurer Blue Shield California ended their partnership in favor of competitors such as Amazon Pharmacy and Mark Cuban Cost Plus Drug Company. CVS had been Blue Shield California’s pharmacy benefit manager, but the insurer expects up to $500 million in savings with the new arrangement. CVS stock had already lost over 21% this year due to concerns about competition from companies such as Amazon Pharmacy.
Next Week
Companies reporting earnings next week will include retailers Lowe’s, BJ’s, Macy’s, Nvidia, Kohl’s, Gap, Nordstrom, Urban Outfitters, Dick’s and Dollar Tree, and some other firms like Nvidia, Zoom, Peloton, and TD Bank.
The National Association of Realtors will release a report on existing home sales Tuesday.