Key Takeaways
- Retailers Reporting Earnings
- Overall Earnings Better Than Expected So Far
- U.S. Steel Receives Unsolicited Offer
The Nasdaq Composite dropped nearly 2% last week and for the first time since December, logged back to back losing weeks. The S&P 500 fared slightly better, dropping less than 0.5% while posting back to back weekly losses for the first time since the beginning of May. Those losses come despite a better than expected earning cycle thus far, though this week will bear watching for signs retail spending.
Home Depot is scheduled to report earnings Tuesday before the open. They’ll be followed by Target
TGT
WMT
Another interesting aspect to the retail earnings coming out will be back to school sales numbers. In particular, I’m interested to see if consumers have traded down to discount retailers or perhaps even garage sales because of continued inflationary pressures. Also, back to school sales are frequently seen as a precursor to holiday sales, therefore, I’ll be looking for signs of what retailers are expecting for this year.
With 90% of the S&P 500 having reported earnings, the numbers have come in slightly better than expected. According to an article in The Wall Street Journal, 79% of companies have beaten expectations, which is slightly above the average of 77%. However, that needs a bit of context. At the end of 2022, forecasts were calling for earnings to be down less than 1% for the second quarter. Those expectations then fell to as much as a 7% drop. As things currently stand, it looks like earnings will be down roughly 6%. Looking forward to next quarter, analysts are expecting a flat third quarter followed by a 7% jump in earnings in the fourth quarter.
As earnings season heads into the home stretch, attention will begin shifting towards Federal budget negotiations. This year’s budget ends on September 30th and unless a new budget is agreed upon before then, the government would have to shut down until a new deal is reached. It was just back in June that debt ceiling negotiations nearly pushed the U.S. into default, leading to a downgrade by rating’s agency Fitch. Therefore, it will be somewhat interesting to see how lawmakers handle the upcoming negotiations.
Taking a look at some individual companies making news this morning, shares of U.S. Steel are indicated higher by nearly 32% in premarket trading following an unsolicited bid from Cleveland Cliffs. Although U.S. Steel rejected the offer and said they were reviewing strategic options, this story is worth watching as it could have significant geopolitical implications for the entire steel industry. If the two companies do ultimately merge, it would make for the largest steel company in the world.
Shares of Tesla
TSLA
Finally, a couple other items worth noting. Oil is lower by 0.5% in premarket trading; however, oil prices are up 10% since just a month ago. That has pushed the average price of gasoline up to $3.85 from $3.57 in July. This is something I’ve mentioned in the past because if there is one commodity that can quickly ignite inflation, it’s oil. Also, I’m watching overall market volatility. The VIX is at 15.60 in premarket trading, up from 14.84, where it settled last week. While VIX remains at a low level, the 5% jump in premarket could be a sign of things to come this week. As always, I would stick with your investing plan and long term objectives.
tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.
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