If there’s more bad news for retailers in the week ahead, that could be a negative catalyst for an already testy stock market.
Market professionals are watching for signs that more stocks may be bottoming, although strategists say it’s a tricky outlook and one that could be a false signal.
this S&P 500In Friday’s session, the previous low was breached, reaching bear market levels — trading more than 20% below the all-time high set in January. But it doesn’t close there. Instead, it reversed the day’s sharp decline and ended the day on a slightly positive note.
“It’s a process … this week’s breakout of last week’s bottom is scary. These things take time,” said Julian Emanuel, head of equities, derivatives and quantitative strategy at Evercore ISI.
Emmanuel said a move out of the lows could signal a buying opportunity and the market is in the process of bottoming out. “In the medium to long term, through the end of the year, we continue to see future share price gains,” he said.
The stock market has been lower in the past week, Despite the fact that strategists have been expecting a rebound in the oversold market. The market initially rallied until earnings fell below walmart and Target Blow up earnings.
The unexpected weakness of the two powerful big-box retailers weighed on their stocks, battering the retail sector and overall market lower exist Worry about consumers swaying Other companies will also face profitability problems.
income from Costco, Best Buy Other data, along with personal consumption expenditures data, could be important in the week ahead as investors weigh consumer losses. PCE includes data on spending, income and inflation.
this S&P 500 It entered bear market territory on Friday when it broke below 3,837.24, but did not close there. Some Wall Street pros believe that if an index falls 20% intraday, it’s a bear market, but others insist the index must close at that level for a bear market to take effect.
In any event, it was the biggest drop since March 2020, when the bear market slumped rapidly at the start of the pandemic.
“This is another step in the bottoming process, but we need to follow. Given the explosive growth we’ve seen this week, there’s going to be a ton of retailers reporting next week — that’s where investors’ biggest microscopes come in” Iman Newell said. “It is absolutely critical for the wider market to respond positively to any reports from retailers.”
While there is no official determination of what a bear market is, strategists agree that the extent of the bear market, or how far stocks may fall, is entirely dependent on how the economy performs.
“The whole thing comes down to whether there’s going to be a recession. In the last three bear markets that didn’t have a recession, it’s been down 21.3%, and we’re basically there,” Emanuel said. Over the past three times when a bear market has a recession, the average decline has been 47.9%, he said. Those bear markets were in 2000, 2008 and 2020.
Other retailers set to report earnings in the coming week include ultimate beauty, Macy’s, Dick’s Sporting Goodsand discount stores dollar tree and US dollar average. Their report and commentary could help clarify whether there is broader consumer weakness and how much inflation and supply chain disruptions are affecting stores and the economy.
“Given what we’ve seen this week, any retailer reporting in this environment is cause for fear among investors,” Emanuel said.
The reports from Walmart and Target come as the market is also evaluating a very strong April retail sales report, Display spending rose 8.2% year over year.
For the week ahead, the economic calendar includes minutes from the Fed’s last meeting on Wednesday, second-quarter first-quarter gross domestic product (GDP) on Thursday, and Friday’s PCE data. The PCE data also includes the PCE inflation index, which is closely watched by the Fed.
“We may turn to the economic data. We get April new home sales, which looks to be down, but not as bad as April,” said Art Hogan, chief market strategist at National Securities. “We get durables, It could also show improvement. One thing that is consistent is that the data and the economic calendar are better than the market is reacting to it.”
Stocks have been battered over the past week, with the S&P 500 down 3% to 3,901. The Nasdaq was even bloodier, down 3.8% as some large-cap tech stocks tumbled. Apple fell 6.4% for the week and Tesla fell 13.7%.
Emanuel said investors should remain defensive. “In this environment, you have to look for all the strengths you can, namely better earnings growth expected, low multiples and high short interest,” he said. When short positions in a stock are high, it means investors expect the price to fall, and any price increase could force those investors to cover their shorts, driving the share price for better gains.
Emanuel said he likes value names too. “It’s a very viable market segment in the long run,” he said. Emanuel added that value stocks are under-owned by individuals, which he said is a hedge in an environment of rising interest rates and also fights inflation.
A week ahead of the calendar
income: Zoom videoPremium Auto Parts
12:00 pm Atlanta Fed President Rafael Bostic
7:00 PM Kansas City Fed President Esther George
9:45 AM S&P Global Manufacturing PMI
9:45 a.m. S&P Global Services PMI
10:00 AM New Home Sales
12:20 p.m. Federal Reserve Chairman Jerome Powell speaks at the National Center for American Indian Enterprise Development Summit
8:30 AM Durable Goods
12:15 p.m. Fed Vice Chair Lyle Brainard
2:00 p.m. FOMC minutes
income: Costco, Macy’s, Autodesk, Gap, Dell Technologies, dollar tree, dollar general, ultimate beauty, Lionsgate, VMware, Baidu, AlibabaMedtronic, Burlington storeAmerican Eagle Outfitters, Toronto Dominion, Jack in the Box, buckle, working day, Sumo Logic
8:30 AM Unemployment Claims
8:30 a.m. Real GDP (2nd estimate for Q1)
10:00 AM Homes for Sale
1:00 p.m. San Francisco Fed President Mary Daly
8:30 a.m. Early announcement of economic indicators
8:30 AM Wholesale Inventory
8:30 AM Personal Income/Expenses
8:30 AM PCE Deflator
10:00 AM University of Michigan Consumer Sentiment