Retail Earnings In Focus as S&P 500 Index Surges 8% In 2023
February 20 2023 - 6:01AM
Finscreener.org
After an extremely volatile
period in 2022, the stock market has gained momentum in the last
two months. In fact, equities is among the top-performing asset
classes year-to-date, with the
S&P 500
index rising 8% in 2023. Comparatively, high-yield corporate bonds
and investment grade corporate bonds are up 3.1% and 1.9%
respectively while oil prices are down over 2% this
year.
Let’s see what stock market
investors should expect from the S&P 500 in the upcoming
week which is shortened due to the President’s day holiday on
Monday.
Retail earnings in focus
Retail giants such as
Home Depot (NYSE:
HD) and Walmart (NYSE: WMT) will be
releasing their quarterly reports this week. Investors will be
watching closely to see if rising interest rates, higher commodity
prices and inflation have negatively impacted consumer demand in
recent months.
Walmart is among the largest
retailers in the world and is forecast to report adjusted earnings
per share of $1.52 in its third quarter of fiscal 2023 (ended in
October). This forecast represents a decline of 6% in the company’s
profit margins compared to the prior-year period. Comparatively,
its sales might rise by 5% to $160 billion in Q3 of
2023.
Comparatively, analysts expect
Home Depot’s sales to rise by 4.2% to $157.45 billion, while
adjusted earnings are estimated to rise 1.9% to $16.65 per share in
fiscal Q3 of 2023.
If we look at all the S&P
500 companies that have reported earnings for the previous quarter,
69% have exceeded Wall Street’s EPS estimates. But this is below
the five-year and 10-year figure of 77% and 73% respectively. These
companies have exceeded earnings projections by 1.1%. In the last
five years, companies have outpaced earnings forecast by 8.6% on
average, while in the last ten years, this number stands at
6.4%.
Home sales and housing market
Rising interest yields have
increased mortgage rates significantly in the last year, leading to
a drastic fall in demand for home loans. The rising cost of debt is
likely to drive home sales lower in 2023. We will soon be receiving
housing updates as data for existing home sales for January will
release this week.
Existing home sales for January
are projected at 4.1 million units, well below the prior year
figure of 6.49 million. However, it will be higher than the 4.02
million units sold in December, marking the first sequential
increase in 12 months.
New home sales might touch
620,000 in January, compared to 616,000 in December. A report from
Investopedia states, “Home sales were likely boosted last month by
falling mortgage rates, which fell from 20-year highs hit late last
year. The average rate on a 30-year
fixed-rate mortgage fell
to 6.09% in early February, after peaking above 7% in late
October.”
Inflation data key to interest rates
The primary reason why the
Federal Reserve has increased interest rates is to bring inflation
under control. One north-star metric the central banks follows is
the Personal Consumer Expenditures (PCE) price index. Published by
the Bureau of Economic Analysis, the PCE price index for January is
expected to rise 0.3% in January, much higher than the 0.1% gain in
the previous two months. It also means prices have surged 4.8% year
over year, compared to the 5% rise in December.
Moreover, core prices is forecast
to have risen 0.5% for January, up from a 0.3% uptick in December.
Core prices excludes costs for energy and food and might gain 4.3%
for January.
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