Monday, November 16, 2020

Spotlight on Retail Sector as Earnings Season Ends


News shaping
the markets today


What’s happening: Various retail companies are scheduled to report their quarterly results this week as the earnings season draws to a close.

What happened: The retail sector had been experiencing a gradual shift to online shopping. This trend was accelerated by the pandemic, with malls and stores witnessing a steep decline in footfall.

Against this backdrop, investors eagerly await reports from some of the major players in the retail sector, including Walmart, Home Depot and Target. The earnings reported by Americas biggest retailers also serves as a bellwether for the recovery in consumer demand amid rising covid-19 numbers and a strained jobs market.

Why it matters: Retailers that were quick to consolidate their online presence and offerings had generated healthy revenue growth towards the beginning of the pandemic due to massive panic buying. The easing of this phenomenon is expected to impact revenue growth in the third quarter. The consensus estimate calls for a deceleration in overall sales growth from 9% in the first quarter and 6% in the second to 3% in the third quarter.

Meanwhile, the third-quarter results are expected to have been boosted by an increase in consumer spending after the US government’s stimulus checks and higher unemployment benefits.

The shift among consumers to the online medium appears more permanent, as the trend continued even after the reopening of economies worldwide. Traditional malls witnessed only a marginal recovery in foot traffic due to social distancing. The move online is expected to continue benefiting retailers like Walmart and Target, which have thrived during the pandemic. Walmart and Tr revenues and earnings are projected to grow 3.7% and 1.7%, while Target is expected to report 11.5% and 16.2% growth in the two metrices.

On the other hand, companies that have been slow in shifting their businesses online, like Macy’s and Kohl’s, continue to struggle and are expected to post losses this week.

How the shares responded: Shares of Walmart have gained around 26% year to year, outperforming the 10% rise in the S&P 500. Target’s stock is up 27% this year, while Home Depot’s shares have added around 27%.

What to watch: Investors are bullish ahead of the results, as the overall earnings season has been positive with most companies exceeding expectations. Markets look forward to the performance of retailers during the all-important holiday season. Investors remain concerned, however, about the impact of rising covid-19 cases and delay in the government’s next stimulus package on the retail sector going ahead

The Markets Today


US stocks will be in focus today, after closing higher last week.

Context: Wall Street gained on Friday with investors buying stocks that are likely to benefit from an economic recovery.

Details: Both the Dow Jones and S&P 500 recorded significant gains last week, driven by Pfizer’s news that its covid-19 vaccine candidate, which the company is developing with partner BioNTech, was over 90% effective in a late-stage trial. The Dow added 4.1%, while the S&P 500 gained 2.2% for the week.

The news sent cyclical stocks higher last week as investors expected these stocks to benefit from an economic rebound next year. However, technology shares, which achieved new highs during the pandemic, were dumped by investors. The tech-heavy Nasdaq 100 slipped 0.6% last week.

Meanwhile, coronavirus cases continued to rise in many US states, with over 150,000 cases being confirmed on Thursday. 

The rise in infections forced some states to reimplement restrictions, with New York imposing new restrictions on restaurants, bars, and gyms last week.

Federal Reserve Chairman Jerome Powell also expressed concern over the country’s economic outlook. “With the virus spreading, the next few months could be challenging,” Powell cautioned.

The Dow Jones climbed around 400 points to close at 29,479.81 on Friday, while Nasdaq 100 settled higher by 1.02% at 11,829.29. The S&P 500 rose 1.36% to 3,585.15, with energy and industrial shares leading the gain. The index also notched a record closing high in the previous session.

What to watch: Markets await the NY Empire State Manufacturing Index, which is expected to rise to 13.5 in November, from a reading of 10.50 in October. Investors will also keep an eye on the rising coronavirus numbers, with total cases hitting 11 million in the US.

Other Markets: European trading indices closed mostly higher on Friday, with the German DAX 30 and French 40 up by 0.18% and 0.33%, respectively. However, the FTSE 100 slipped 0.36% in the prior session.

Support & Resistances
for Today


market snapshot


Futures at 0400 (GMT)

What else to watch today


Italy’s consumer prices, South Africa's SACCI business confidence index, Turkey's motor vehicle production and Canada’s car registrations and manufacturing sales.