Market rally holds key levels, but breakouts struggle: weekly review

Market rally holds key levels, but breakouts struggle: weekly review

Major indexes hit market rally highs on Tuesday but then retreated amid hawkish comments from the Fed and mixed earnings. But the indices found support near key levels and rebounded on Friday. walmart (WMT), Ross Stores (ROST) and Foot locker (FL) were among the winners while other discounters Target (TGT) and Wholesale BJ’s (BJ) had weak results or tips or both.




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Chinese e-commerce giants Ali Baba (BABA) and JD.com (JD) surged on strong earnings. Nvidia (NVDA) reported mixed results and guided low. The 10-year Treasury yield dipped amid more subdued inflation data, briefly undercutting the current overnight fed funds rate, but rebounded somewhat. Crude oil prices fell.

Market rally rebounds from key levels

After surging the previous week, major indexes initially rose but then fell amid hawkish comments from the Fed. However, they held key support levels and rebounded modestly, paring the losses. Recent breakouts have struggled amid market volatility, but they haven’t necessarily broken out. Treasury yields fell but then rebounded. Crude oil prices soared sharply.

Inflation Cooling, Strong Consumers

The producer price index showed headline inflation slowing to 8% from a downwardly revised 8.4% the previous month. The core PPI inflation rate fell from 7.1% to 6.7%. This follows the colder than expected consumer price index from the previous week.

However, retail sales rose stronger than expected by 1.3% in October against 0.9% excluding vehicles and gasoline. Restaurant and bar sales rose 1.6% on the month and 14.1% from a year ago, indicating a healthy appetite for discretionary spending. Yet economic weakness is spreading beyond housing. Industrial production fell 0.1% in October after September’s gain was revised down to 0.1% from 0.4%. New jobless claims fell by 4,000 to 222,000 in the week of November 12, but the number of people continuing to apply for benefits rose by 13,000, topping 1.5 million for the first time since March.

But a host of Fed speakers have made it clear that the data is nowhere near weak enough to consider a pause in rate hikes. The harshest comments came from St. Louis Fed President James Bullard, who said the Fed’s key rate may need to rise in the 5% to 7% range to be restrictive enough.

Walmart, Target Show sharp contrast

The discount giants diverged sharply on results, forecasts and share prices. Walmart’s windfall profits rose 3% with revenue up 9%, amid strong same-store sales and subdued inventory. The retailer also raised its guidelines. Target (TGT) reported a 49% EPS decline, much worse than expected. Sales rose 3%, just beating. But Target also misguided holiday sales. WMT stock broke above a handful buy point. TGT stock plunged 13% on Wednesday, but pared weekly losses somewhat.

Nvidia and Micron show their weak points

Graphics chip manufacturer Nvidia (NVDA) and memory chip maker Micron Technology (MU) pointed to weak near-term sales in their respective markets in separate reports. Nvidia released a mixed fiscal report for the third quarter and offered a sales forecast that was slightly lower than Wall Street forecasts. Micron announced it was cutting memory chip production, citing bloated inventory. Elsewhere, chip gear maker Applied Materials (AMAT) released a beat and relaunch report for its fiscal fourth quarter.

Wholesale BJ falls on the tips

The membership warehouse chain topped third-quarter views with a 9% EPS gain and a 12% increase in sales, although that ended the growth acceleration for both. Wholesale BJ’s (BJ) sees weakness in the next year, sending the stock plummeting in volume.

TJX and Ross soar on results

TJX earnings topped third-quarter views with a 2% gain, which was enough to offset weak revenue and a disappointing holiday quarter forecast. Ross Stores (ROST) EPS fell x% as sales were flat and comps fell 3%, but these all easily exceeded forecasts. The off-price clothing chain also raised its annual targets. TJX (TJX) rose sharply, moving out of range. The ROST stock broke out of a buy zone.

Home Depot, Lowe’s Top

Home improvement retailers beat third-quarter views in a challenging environment. Home deposit (HD) reported EPS growth of 8% while revenue increased 5.6% to $38.87 billion. Lowe’s (LOW) profits jumped 20% as revenue rose 2.2% to $23.5 billion, marking its first positive revenue quarter since January. The shares were little changed after big gains the previous week.

Cisco Revenues, Orientation Summits

Cisco Systems (CSCO) reported that fiscal first-quarter profits rose 5% and revenue rose 6% to $13.6 billion, both slightly higher. The networking giant was up slightly for the current quarter. Cisco also announced a restructuring plan.

Beat the Chinese e-commerce giants

Ali Baba (BABA) and JD.com (JD) topped earnings views, but both missed revenue that was roughly flat from a year earlier. This is in stark contrast to the past, in which the two Chinese e-commerce giants have consistently recorded double-digit revenue gains. Alibaba and JD, along with every other internet company in China, continue to struggle amid macroeconomic weakness, a resurgence in Covid-19 shutdowns, burdensome regulations and more. Both stocks moved above their 200-day moving averages.

LNG benefit mixed

Two other liquefied natural gas shippers reported mixed results last week amid volatile natural gas prices and European gas reservoirs mostly filled for the winter. Golar LNG (GLNG) beat views on third-quarter earnings but missed revenue, which fell 35% to $68.6 million. Earlier, Flexible LNG (FLNG) reported a 32% EPS gain while revenue rose 11% to $91.3 million, both beating as a strong LNG market boosted its backlog. These reports follow mixed results from the LNG giant Energy Cheniere (LNG) and New Fortress Energy (NFE) earlier this month.

Building product manufacturers

Griffin Corp. (GFF) recorded a 230% EPS gain for the fiscal fourth quarter, easily beating views, with growth accelerating for a fourth consecutive quarter. Sales increased 24% to $708.9 million online. The manufacturer of building products and tools also increased its quarterly dividend by 10%. Shares plunged on Thursday morning but quickly pared their losses. Atkore (ATKR) surged after EPS rose 26%, while guiding Q1 EPS.

News in brief

At Warren Buffett’s Berkshire Hathaway (BRKB) unveiled a significant new stake in the third quarter of Taiwan semiconductor (TSM), sending shares of the chip foundry giant skyrocketing. Berkshire also took new positions in Jefferies Group (JEF) and Louisiana-Pacific (LPX). The two appeared on the news but cut the winnings.

Palo Alto Networks (PANW) reported that fiscal first-quarter EPS increased 50%, while revenue increased 25% to $1.6 billion and billings increased 27% to $1.7 billion, all beating. The cybersecurity company guided second-quarter EPS higher. Palo Alto also announced the acquisition of Cider Security for $195 million in cash.

Modern (MRNA) surged on Monday, pulling Pfizer (EFP) and BioNTech (BNTX) shares above, after reporting promising data for its bivalent Covid booster. The updated vaccine resulted in a 15.1-fold increase in antibodies capable of handling the BA.4 and BA.5 subvariants of omicron as well as the ancestral strain compared to pre-boost levels.

Freyr-battery (FREY) widened its net loss more than expected, but management plans to begin production of sample cells in early 2023, a key milestone. KKR (KKR) is reportedly looking to invest in the Norwegian startup.

General Engines (GM) raised its free cash flow target for 2022 and said it expects electric vehicles to become profitable by 2025.

Foot Locker’s EPS fell 34% while revenue fell 0.5%. Comparable store sales were up 8% versus views for a 6% decline. The mall-based athletic shoe retailer also guided for the fourth quarter of the holiday.

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