Stocks were mixed this week, as earnings and guidance from companies showed inconsistent results and forecasts. Economic data also came in on either side of consensus estimates.
Consumer Discretionary (+3.93%) and Tech (+2.79%) companies were the biggest winners this week, while Energy (-1.62%), Financials (-1.54%), and Materials (-1.15%) companies made up the biggest losers.
President Biden was dealt a win this week after the House passed the Administration’s $1.7 trillion Build Back Better bill Friday. This sends the bill back to the Senate, where it will likely be revised during the next couple of weeks. The bill making its way over to the Senate currently includes funding for universal pre-K, an expansion to Medicare, and electric vehicle tax credits up to $12,500.
Loosely related, EV carmakers Rivian (RIVN) and Lucid (LCID) had a rollercoaster of a week. Lucid rose as much as 29.48% from this week’s open to its highpoint, before fumbling some of the gains and ending the week up 23.79%.
Rivian, which IPO’d last week, skyrocketed to become the third-largest car company by market cap. Rivian surged as much as 35% to its high of $179.47, before returning most of its gains to the market to finish down 3.08% for the week. Read more about why this one left us scratching our heads, here.
Earnings
Earnings left a little to be desired this week as many companies lowered/provided downside guidance, missed consensus estimates, and faced shrinking margins. They weren’t all bad though, so we’ll start with some of the good ones.
Macy’s (M) and Kohl’s (KSS) both posted better-than-expected quarterly earnings while providing upside revenue and earnings guidance for full-year 2022. Kohls had a quarterly profit of $1.65 per share against estimates for $0.70 per share, while Macy’s recorded profits of $1.23 per share against estimates for $0.33 per share. Macy’s and Kohl’s both popped following earnings before giving some back the following day.
At Kohl’s, the highlight was its new partnership with Sephora that saw more than 200 Sephora shops get added inside of Kohl’s stores. With more than 25% of Sephora shoppers being new to Kohl’s, the partnership has done great at driving new consumers to the company’s stores.
At Macy’s, the highlight was its push into the digital realm when it teased a “curated digital marketplace.” The push could expand Macy’s online presence dramatically by “enabling carefully selected third-party merchants to sell their products on macys.com and bloomingdales.com.”
Anyways, enough with the (retail) winners, let’s talk about the losers and keep it with brick and mortars while we’re at it.
Walmart (WMT) and Target (TGT) both saw shares decline this week despite better-than-expected earnings reports. The companies fell after showing shrinking gross margins due to rising costs and keeping prices steady.
While watching margins shrink is never exciting for investors, the bearish sentiment was rather surprising, at least to CNBC’s Jim Cramer who called Walmart an “inflation fighter” and noted how the company is “taking share from everybody” by having lower prices.
The funny thing here to me is how, well, one of the chief complaints about Walmart is that it engages in “predatory pricing” in order to drive the competition away. That tactic has (allegedly) worked great for Walmart in the past, so I’m definitely with Cramer here that the shrinking margins were less of a red flag and I might even say that it should be thought of as an investment in a larger market share in the future.
Economic Recap
Now to the mixed economic showing. Retail Sales, Industrial Production and Capacity Utilization, as well as the New Residential Construction report were all released this week.
First up was Retail Sales, which was better than expected. The sales headline figure showed a 1.7% increase in spending in October, compared to estimates for a 1.2% rise. Excluding auto sales, the growth was the same (1.7%) and also outpaced estimates for a 0.9% increase. Octobers retail sales were helped by 1) earlier holiday shopping and 2) rising prices.
Next up was Industrial Production and Capacity Utilization. Production increased 1.6% after declining 1.3% in September, while Capacity increased to a reading of 76.4% following a decline to 75.2% in September. Production of transit-related goods increased by 5.3% as Covid cases fall and restrictions got lifted, while semiconductor production increased for its second straight month - a sign that the ongoing semiconductor shortage could be easing.
Lastly, the New Residential Construction report contained one beat and one miss. Housing starts unexpectedly declined and missed estimates, falling to an annual rate of 1,520,000 homes from an annual rate of 1,530,000. While construction lagged, permits picked up to an annual rate of 1,650,000 permits from an annual rate of 1,586,000. Slowed construction of homes wasn’t ideal, but permits, which is an indicator of future growth, provided a welcomed silver lining.
All told, the S&P 500 increase 0.32%, while the Nasdaq outperformed with a rise of 1.24%. Meanwhile, the Dow slumped 1.38% and the Russell 2000 shaved off 2.84%.
