Stocks rallied this week as better than expected economic data boosted sentiment throughout the week.
Earnings continued to have a mixed showing but were all around pretty interesting. Retailers, in particular, had some solid reports that bucked the trend set by Walmart (WMT) and Target (TGT) last week.
Fed Meeting Minutes
The minutes from the Federal Reserve meeting boosted stocks this week as they quelled some fears that the Fed’s pursuit of lowering inflation would send the economy into a recession.
The meeting notes were released Wednesday and showed the Fed aimed to hit the neutral rate (which is roughly 2.4%) quickly, allowing the Fed to pause rate hikes later in the year.
Fed Chair Jerome Powell said that most Federal Open Market Committee participants agree on a half-point hike in the June and July meetings. Further, the Fed said it would begin reducing its $9 trillion worth of assets accumulated during the pandemic starting next month.
While the minutes quelled fears, the week didn't pass \without warning. Powell said that the rate hikes are “not going to be pleasant” as not only do higher interest rates on loans force higher payments, but they also can dent asset values.
The Fed’s favored inflation gauge - the Personal Consumption Expenditures Price Index - told a similar story to the most recent CPI and PPI reports.
Price growth eased in April to a yearly rate of 6.3% from 6.5%. On a monthly basis, it rose 0.2% following a 0.9% jump in March.
This supports the “peak inflation” narrative that has been brewing. While getting to the other side of the peak is important, how long it lingers is also important.
Reactions to the PCE report were solid, likely thanks to developments at the Fed, as the extra wiggle room to pause hikes if need be, shows that the Fed has a little more room than initially thought to deal with nagging inflation.
Fed and inflation aside, retail earnings, guidance, and reactions were surprisingly solid this week after Target and Walmart lowered the bar last week. Some of the reports were better than feared, while others told a completely different story.
While Walmart and Target noted pullbacks in discretionary spending, Best Buy showed that pessimism to be a bit excessive as the electronics retailer edged out earnings and revenue estimates. Best Buy’s full-year 2023 earnings guidance was in line with estimates.
Department stores Nordstrom and Macy’s were able to side step trends set by Kohl’s and those mentioned above, likely due to them having a more affluent customer base. Macy’s had a solid beat and raise, while Nordstrom narrowly missed earnings estimates, beat revenue estimates, provided upside full-year 2023 earnings and revenue guidance, and announced a $500 million share repurchase program.
Lastly, Dollar General and Dollar Tree - while not benefiting from a more affluent customer base - found themselves on a different path than other value-based retailers. Both stocks had strong earnings and revenue beats during the quarter.
All told, stocks had a strong week. The S&P 500 rallied 5.69%, while the Dow rose 5.54%. The Russell 2000 and Nasdaq both outperformed, rising 6.04% and 6.2% respectively.