Stocks are headed for another potentially treacherous week, as a slew of retail traders announce earnings

If there is more bad news from retail traders next week, it could be a negative catalyst for an already volatile stock market.

Market professionals are watching for more signs that stocks may be bottoming, although strategists say this is a tough prospect and there may be false signals.

The S&P 500, on a daily basis Friday, broke its previous low to reach bear market levels – trading more than 20% below the record high it reached in January. But it did not close there. Instead, it reversed the day’s sharp losses and ended the day slightly positive.

“It’s a process…it’s been a scary week breaking through last week’s bottom. These things take time,” said Julian Emanuel, head of equities, derivatives and quantitative strategy at Evercore ISI.

Emmanuel said that a break out of the lows could signal a buying opportunity, and that the market is on its way to a bottom. “Looking at the medium to long term, towards the end of the year, we are still seeing higher stock prices going forward,” he said.

Stocks were lower last week, despite the fact that strategists had been anticipating an oversold market rebound. The market initially rallied, until losing profits from Walmart and Target blew up the gains.

The sudden weakness in these two big traders crushed their stocks, hurt the retail sector, and sent the entire market down amid fears of consumer volatility and that other companies will also suffer earnings problems.

Earnings from Costco, Best Buy and others, as well as personal consumption expenditure data, could be significant in the coming week as investors weigh how much a consumer stumbles on. The personal consumption expenditures index includes data on spending, income, and inflation.

On Friday, the S&P 500 fell into bear market territory when it fell below 3,837.24, but it did not close there. Some Wall Street professionals consider it a bear market if a 20% drop in the index is reached on a daily basis, but others insist that the index should close at that level for a bear market to be effective.

Regardless, it’s the biggest pullback of this magnitude since the March 2020 bear market crash at the start of the pandemic.

“This is another step in the bottoming process, but we will need to follow up. It will be a lot of retailers next week – the place under the biggest microscope for investors, given the explosions we have seen this week,” Emanuel said. “It will be very vital for the broad market to respond in a positive way. for anything those retailers say.”

Although there is no formal definition of what a bear market is, strategists agree that the extent of a bear market, or the extent to which stocks can fall, depends strictly on the performance of the economy.

“It’s all about whether or not there will be a recession. In the last three bear markets, where there has been no recession, the drop is 21.3% and we are basically there,” Emmanuel said. He said bear markets when there is a recession, the average drop was 47.9%. Those were the bear markets in 2000, 2008 and 2020.

Other retailers reporting earnings next week include Ulta Beauty, Macy’s, Dick’s Sporting Goods and Dollar Tree and Dollar General discounts. Their reports and comments can help explain whether consumer is weakening at scale, and how much inflation and supply chain contractions continue to hurt stores and the economy.

“Any retailer that reports on this environment is cause for investor fear, given what we’ve seen this week,” Emmanuel said.

Reports came from Walmart and Target as the market was also evaluating a very strong retail sales report for the month of April, showing spending jumping 8.2% year over year.

Next week, the economic calendar includes the Federal Reserve’s meeting minutes from its last meeting on Wednesday, a second look at first-quarter GDP Thursday, as well as personal consumption expenditures data on Friday. The PCE data also includes the PCE inflation index, which the Fed is watching closely.

“We’re likely to shift gears to focus on economic data. We get the April reading on new home sales, which appears to be down but not as much as it was in April,” said Art Hogan, chief market strategist at National Securities. . “We’re getting durable goods, and it’s likely to show improvement as well. The only thing that’s been consistent is the data and the economic calendar has been better than the market’s reaction to it.”

Stocks took a hit last week, with the S&P 500 down 3% to 3,901. The Nasdaq was even more bloodied, dropping 3.8% as some of the big tech favorites collapsed. Apple is down 6.4% for the week, and Tesla is down 13.7%.

Emmanuel said investors should continue to defend. “This is an environment where you have to look for all the aspects that you can achieve, which are expected to have better earnings growth, low multipliers and very short interest,” he said. When a stock has a short position, which means that investors expect the price to fall, any higher movement in the price may force these investors to cover short positions, driving the stock price to make better gains.

Emmanuel said he likes valuable names, too. “In the long run, it’s a very viable area of ​​the market,” he said. Emmanuel added that valuable stocks are under-owned by individuals, and said that they hedge in an environment of rising prices and also against inflation.

Next week’s calendar

Monday

gains: Video Zoom, Advanced Auto Parts

12:00 noon Atlanta Federal Reserve Chairman Rafael Bostic

7:00 p.m. Kansas City Fed President Esther George

Tuesday

gains: Autozone, Nordstrom, Best Buy, Abercrombie and Fitch, Ralph Lauren, Petco, Agilent, Toll Brothers, NetEase

9:45 am S&P Global Manufacturing Index

9:45 AM S&P Global Services PMI

10:00 am New Home Sales

12:20 p.m. Federal Reserve Chairman Jerome Powell speaking at the National Center for the Development of American Indian Enterprises

Wednesday

gains: Nvidia, Dick’s Sporting Goods, Express, Bank of Montreal, Box, Nutanix

8:30 am durable goods

12:15 p.m. Fed Vice Chairman Lyle Brainard

2:00 PM FOMC Minutes

Thursday

gains: Costco, Macy’s, Autodesk, Gap, Dell Technologies, Dollar Tree, Dollar General, Ulta Beauty, Lions Gate, VMware, Baidu, Alibaba, Medtronic, Burlington Stores, American Eagle Outfitters, Toronto Dominion, Jack in the Box, Buckle, Workday, Sumo Logic

8:30 a.m. Unemployment Claims

8:30 a.m. Real GDP (Q2 Estimated)

10:00 am pending home sales

1:00 p.m., San Francisco Fed President Mary Daly

Friday

gains: Canopy growth, a lot

8:30 am Advanced Economic Indicators

8:30 am wholesale stock

8:30 a.m. Personal Income / Expenditure

8:30 AM PCE contraction device

10:00 a.m. University of Michigan Consumer Review

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