- PCE inflation data, Fed FOMC minutes, retailer earnings in focus.
- Walmart stock is a buy amid strong results, upbeat guidance.
- Moderna shares set to underperform on big profit drop, sluggish outlook.
Stocks on Wall Street ended mostly lower on Friday, with the Dow Jones Industrial Average suffering its third straight weekly decline on fears that the Federal Reserve will continue hiking interest rates and keep them higher for longer to battle sticky inflation.
For the week, the Dow fell 0.1%, the benchmark S&P 500 lost 0.3%, while the technology-heavy Nasdaq Composite managed to eke out a gain of 0.6% and the small-cap Russell 2000 advanced 1.4%.
The holiday-shortened week ahead - which will see U.S. stock markets closed on Monday for the Presidents Day holiday - is expected to be another eventful one.
On the economic calendar, most important will be Friday’s personal consumption expenditures (PCE) price index, which is the Federal Reserve’s preferred inflation measure. As per Investing.com, analysts expect both the month-over-month (+0.4%) and year-over-year rates (+4.3%) to move higher.
Source: Investing.com
The release of the Fed FOMC minutes on Wednesday will also be watched closely for any discussion on the potential for a 50-basis point rate hike in March.
Elsewhere, notable companies set to report earnings include retail heavyweight Home Depot (NYSE:HD), as well as chip giant Nvidia (NASDAQ:NVDA), and Chinese tech stalwarts Alibaba (NYSE:BABA), and Baidu (NASDAQ:BIDU), as Wall Street’s Q4 reporting season draws to a close.
Regardless of which direction the market goes, below we highlight one stock likely to be in demand and another which could see further downside.
Remember though, our timeframe is just for the upcoming week.
Stock To Buy: Walmart
After closing just below its year-to-date high on Friday, I expect Walmart's (NYSE:WMT) stock to outperform in the upcoming week as the retail giant’s latest financial results will surprise to the upside in my view, thanks to favorable consumer demand trends amid the current economic environment.
Walmart is scheduled to release its fourth quarter earnings report before the U.S. market open on Tuesday and results are likely to have benefited from strong grocery sales and the increased trade down among wealthier consumers due to inflation.
According to the options market, traders are pricing in a swing of around 3% in either direction for WMT stock following the update.
The Bentonville, Arkansas-based discount retailer - which operates more than 5,000 stores across the U.S. - has topped Wall Street’s top line expectations for 11 straight quarters dating back to Q1 2020, while missing profit estimates only twice in that span, demonstrating the strength and resilience of its business.
Unsurprisingly, an InvestingPro survey of analyst earnings revisions points to growing optimism ahead of the report, with analysts raising their EPS estimates 16 times in the 90 days prior to the earnings release, compared to only three downward revisions.
Source: InvestingPro
According to InvestingPro, consensus estimates call for Walmart to deliver earnings per share of $1.51, dipping 1.3% from EPS of $1.53 in the year-ago period, while revenue is forecast to increase 3.8% year-over-year to $158.6 billion.
If confirmed, it would mark Walmart’s highest quarterly sales total in its history, as the retailer enjoyed a strong holiday shopping season. In contrast, fellow big-box retailer Target's (NYSE:TGT) holiday-quarter sales are expected to decline 1%, as it cuts prices to clear unsold inventory of discretionary items from its shelves.
Looking ahead, I believe Walmart CEO Doug McMillon will provide better-than-feared guidance for the current fiscal year as it continues to gain market share in the food and groceries business. The retailer currently gets more than 50% of its revenue from food and grocery sales.
Walmart has managed to weather the current operating climate better than most of its peers as it benefits from ongoing changes in consumer behavior due to lingering inflationary pressures that are causing disposable income to shrink.
The chain accounted for almost 16% of all food and grocery spending in the U.S. in 2022, according to industry research firm GlobalData, making it America's largest grocery retailer.
WMT stock ended Friday’s session at $146.44, less than 9% away from a record high of $160.77 reached in April 2022. At current levels, Walmart has a market cap of $394.6 billion, earning it the status of the world’s most valuable brick-and-mortar retailer. Shares have gained 3.3% in 2023 and are up 9.7% over the last 12 months.
Stock To Sell: Moderna
I believe shares of Moderna (NASDAQ:MRNA) will suffer a difficult week ahead, with a potential breakdown to new lows on the horizon, as the embattled vaccine manufacturer gets set to deliver disappointing earnings, in my opinion, due to the negative impact of various headwinds on its business.
MRNA stock fell to its lowest level since Nov. 22 on Friday to close at $166.60. At current valuations, the once high-flying biotechnology company has a market cap of $64 billion.
Year-to-date, shares are down 7.3%, significantly underperforming the broader market since the start of 2023. Even more alarming, the stock is 66.5% below its record peak of $497.49 touched in August 2021.
Market participants expect a sizable move in MRNA shares following the update - which is due ahead of Thursday’s opening bell - with a possible implied swing of 7.8% in either direction, according to the options market.
Consensus calls for the Cambridge, Massachusetts-based vaccine maker to post earnings of $4.60 per share, as per InvestingPro, sinking 59.2% from EPS of $11.29 in the year-ago period. As could be expected, analysts have slashed EPS estimates by 7.1% from their initial expectations in the 90 days leading up to the report, according to an InvestingPro survey.
Source: InvestingPro
Meanwhile, revenue is seen falling 30.5% from last year to $5.02 billion amid dwindling demand for its COVID-19 vaccine due to built-up product inventories around the world, including in the countries that pay the most.
As such, it is my belief that Moderna’s management will warn that vaccination rates could fall even further in the months ahead as the global impact of the COVID pandemic continues to ease.
The biotech firm's only product - the messenger RNA (mRNA) COVID vaccine - pulled in around $18.4 billion in 2022. Market analysts expect that to plunge by more than half to about $7 billion in 2023.
In a fresh setback, Moderna presented mixed interim Phase 3 results for its flu vaccine candidate late last week, raising fresh uncertainty on the regulatory path and approval outlook for the new influenza shot.
Disclosure: At the time of writing, I am short on the S&P 500 and Nasdaq 100 via the ProShares Short S&P 500 ETF (SH) and ProShares Short QQQ ETF (PSQ). 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.