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Earnings and Fed Communication Dampen Investor Sentiment

Weekly Update – November 18, 2022

  • The S&P 500 index shed 0.7% last week, led by the consumer discretionary sector as a number of retailers released weaker-than-expected quarterly results and cut their forecasts.
  • The market benchmark ended Friday’s session at 3,965.34, down from last Friday’s closing level of 3,992.93. The decline erased only part of last week’s 5.9% jump; the S&P 500 is still up 2.4% for November to date. Nevertheless, the S&P 500 is solidly in the red for 2022 thus far with a year-to-date drop of 17%.
  • The weekly decline came as some retail companies including Target (TGT) reported quarterly earnings below analysts’ expectations and lowered guidance. The week’s drop also reflects a paring of the excitement over slower-than-expected inflation that fueled last week’s rally.
  • Among the S&P 500’s sectors, the consumer discretionary sector had the largest percentage drop last week, sliding 3.1%, followed by a 2.4% drop in energy, a 1.8% decline in real estate and a 1.6% slip in materials.
  • However, three sectors managed to post gains: Consumer staples rose 1.7%, followed by a 1% increase in health care and a 0.8% rise in utilities.
  • The decliners in consumer discretionary included Target, whose shares fell 6% on the week amid its earnings miss, and Advance Auto Parts (AAP) and Mohawk Industries (MHK).
  • Advance Auto Parts’ fiscal Q3 adjusted earnings per share and revenue both missed analysts’ expectations amid a margin contraction. The company also lowered its full-year profit forecast, citing currency fluctuations. Shares fell 21%.
  • Mohawk Industries’ shares slipped 9% as the company reported fiscal Q3 adjusted earnings per share that merely matched the Street view while revenue missed analysts’ mean estimate.
  • The energy sector’s drop coincided with a decline in crude oil futures. West Texas Intermediate crude oil hit its lowest level in six weeks on Friday as a rising number of new Covid-19 cases in China added to concerns over demand from the world’s No.1 importer. The sector’s decliners included Coterra Energy (CTRA), which fell 6.5%, and Marathon Oil (MRO), which slid 6.3%.
  • The real estate sector’s drop came as investors worried about the impact of higher lending rates on the real estate market. Decliners included Boston Properties (BXP), down 6.8%; and Welltower (WELL), down 5.3%.
  • On the upside, the gain in consumer staples was led by Walmart (WMT), which reported quarterly results above analysts’ mean estimates and raised its full-year guidance as high inflation is expected to fuel more demand for the company’s discounted prices. Walmart’s shares climbed 5.4%.
  • Next week, inflation will continue to be a focal point as inflation expectations from the New York Fed are expected on Monday. Retail sales for October are due Wednesday while October building permits and housing starts are also due Wednesday. Investors will get another reading on real estate on Friday, when existing home sales for October will be released.
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