- CPI inflation, retail sales, producer prices, and retailer earnings will be in focus this week.
- Walmart is a buy with upbeat Q1 profit and sales growth expected.
- Deere is a sell amid shrinking EPS, disappointing guidance on deck.
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U.S. stocks finished mostly higher on Friday to close out another winning week amid investor optimism that the Federal Reserve will cut interest rates at some point this year.
Source: Investing.com
All three indices were up for the week with the blue-chip Dow Jones Industrial Average registering its best week of 2024. The Dow jumped 2.2%, the blue-chip S&P 500 index rose 1.9%, while the tech-heavy Nasdaq Composite advanced 1.1%.
The week ahead is expected to be another eventful one as investors continue to look for more cues on the prospects for potential rate cuts.
On the economic calendar, most important will be Wednesday’s U.S. consumer price inflation report for April, which is forecast to show headline annual CPI rising by 3.4%, compared to the 3.5% increase recorded in March.
The CPI data will be accompanied by the release of the latest retail sales figures as well as a report on producer prices, will help fill out the inflation picture.
Source: Investing.com
Those releases will be accompanied by a heavy slate of Fed speakers, with the likes of district governors Loretta Mester, Michelle Bowman, Raphael Bostic, Lisa Cook, and Christopher Waller all set to make public appearances.
Meanwhile, Fed Chair Jerome Powell is due to speak at the Netherlands' Foreign Bankers' Association, in Amsterdam, on Tuesday.
As of Sunday morning, financial markets see a roughly 60% chance of the Fed cutting rates in September, according to the Investing.com Fed Monitor Tool.
Elsewhere, some of the key earnings reports to watch this week include updates from Walmart (NYSE:WMT), Home Depot (NYSE:HD), Cisco (NASDAQ:CSCO), Applied Materials (NASDAQ:AMAT), Deere (NYSE:DE), Alibaba (NYSE:BABA), and Baidu (NASDAQ:BIDU), as Wall Street’s reporting season begins to draw down.
Regardless of which direction the market goes, below I highlight one stock likely to be in demand and another which could see fresh downside. Remember though, my timeframe is just for the week ahead, Monday, May 13 - Friday, May 17.
Stock to Buy: Walmart
I expect a strong performance from Walmart (NYSE:WMT) this week, with shares likely to break out to a new record high, as the big-box retailer’s first quarter earnings and revenue will easily top estimates thanks to favorable consumer demand trends.
Furthermore, I believe Walmart CEO Doug McMillion will provide solid guidance for the rest of the year as the discount retailer continues to gain market share in the food and grocery business.
The Bentonville, Arkansas-based discount retailer - which operates more than 5,000 stores across the U.S. - is scheduled to deliver its Q1 update before the U.S. market opens on Thursday at 7:00AM ET.
According to the options market, traders are pricing in a swing of 4.2% in either direction for WMT stock following the report. Shares added 2% after its last earnings report in February.
Source: InvestingPro
Walmart is expected to post earnings per share of $0.52, a tad higher than EPS of $0.49 in the year-ago period. Despite seeing 17 of the 23 analysts surveyed by InvestingPro downwardly revise their profit forecast ahead of the report, estimates are still higher than they were previously.
Meanwhile, revenue is seen rising 3.7% annually to $158.0 billion, reflecting strong grocery sales and as more shoppers sign up for its Walmart+ membership program.
It should be noted that Walmart has topped Wall Street’s sales expectations for 15 straight quarters, demonstrating the strength and resilience of its business.
U.S. same-store sales as well as e-commerce spending - which increased 4% and 17% respectively in the last quarter - will likely top estimates again as consumers flock to its stores and website to place more orders for store pickup and delivery.
Despite a challenging environment for retailers, Walmart is seen benefitting from ongoing changes in frugal consumer behavior amid the current economic backdrop of elevated inflation and high interest rates.
WMT stock ended Friday’s session at $60.48, within sight of its record high of $61.65 reached on March 21. With a market cap of $487 billion, Walmart is the world’s most valuable brick-and-mortar retailer and the 15th largest company trading on the U.S. stock exchange.
Source: Investing.com
Walmart has stood apart from other retailers, with shares rising 15.1% year-to-date. That compares to a gain of 2.8% recorded by the Retail Select Sector SPDR Fund (XRT), which tracks a broad-based, equal-weighted index of U.S. retail companies in the S&P 500.
As ProTips points out, Walmart is in great financial health condition, thanks to strong earnings and revenue growth prospects, combined with its attractive valuation and pristine balance sheet. Additionally, it should be noted that the retail giant has raised its dividend payout for 29 years running.
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Stock to Sell: Deere
I foresee a disappointing week ahead for Deere (NYSE:DE) as the agriculture-and-heavy machinery equipment maker’s latest earnings and outlook will underwhelm investors due to weakening industry demand trends and an uncertain fundamental outlook.
Deere’s fiscal second quarter report is set to come out before the opening bell on Thursday at 6:35AM ET and results are likely to take a hit from slowing agricultural machinery demand amid declining crop prices.
Underscoring several near-term headwinds facing Deere, 13 out of the 17 analysts surveyed by InvestingPro slashed their EPS and sales estimates ahead of the print as Wall Street turned bearish on the tractor maker’s prospects.
Market participants expect a sizable swing in DE stock after the report drops, with an implied move of roughly 5% in either direction as per the options market.
Notably, Deere shares lost about 6% after its fiscal Q1 report came out in mid-February to suffer their fourth straight earnings-day selloff.
Source: InvestingPro
Deere, which is widely viewed as the bellwether for agricultural markets, is seen earning $7.93 a share, tumbling 17.8% from EPS of $9.65 in the year-ago period.
To make matters worse, revenue is forecast to collapse 23.4% annually to $13.32 billion, reflecting slowing demand for its wide range of agricultural, mining, and construction equipment amid a soft agricultural commodities market.
As such, it is my belief that Deere’s management will disappoint investors in their forward guidance and strike a cautious tone given the uncertain outlook for farm and mining machinery sales due to the challenging operating environment.
DE stock closed at $408.03 on Friday, earning the Moline, Illinois-based agriculture equipment maker a valuation of $113.5 billion.
Source: Investing.com
Shares are up just 2% in 2024, underperforming the broader market by a wide margin over the same timeframe.
It should be noted that InvestingPro’s AI-powered ProTips paint a fairly negative picture of Deere’s stock, citing concerns over declining profit and sales growth prospects.
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Disclosure: At the time of writing, I am long on the S&P 500, and the Nasdaq 100 via the SPDR S&P 500 ETF (SPY (NYSE:SPY)), and the Invesco QQQ Trust ETF (QQQ).
I regularly rebalance my portfolio of individual stocks and ETFs based on ongoing risk assessment of both the macroeconomic environment and companies' financials.
The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.
Follow Jesse Cohen on X/Twitter @JesseCohenInv for more stock market analysis and insight.