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Markets Await NVIDIA Earnings; TGT, WSM Report for Q1

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Wednesday, May 22nd, 2024

Pre-market futures are slightly into the red at this hour. Although we’ve seen nice gains on all major indices month-to-date — the Dow +5%, S&P 500 +5.3%, the small-cap Russell 2000 +5.7% and the Nasdaq +7% — we look to have flattened off somewhat over the past week. The Nasdaq and S&P appear to be separating slightly high than the others from a week ago, but those big market up-days look to have cooled off of late.

It’s unlikely we’ll see a big market impact before today’s close. True, the Fed minutes from the most recent FOMC meeting on May 1st will be released today at 2pm, but based simply on the fact that the Fed has kept the funds rate unchanged at 5.25-5.50% for the past 10 months (and counting), we don’t anticipate seeing a vastly wide range of opinion in the minutes. The Fed is not expected to bring us another “dot plot” schedule for possible interest rate cuts until the June meeting (19th-20th).

One thing we saw from this meeting was a measured decline in security holdings. These will move from -$60 billion per month to -$25 billion per month starting in June. This process has taken down the Fed’s balance sheet from $8.95 trillion two years ago to $7.30 trillion today. (This is still $3.2 trillion higher than pre-Covid levels.) Mortgage-backed securities being allowed to roll off the balance sheet remain at -$35 billion per month.

After today’s open, we’ll also see Existing Home Sales numbers for April. Expectations are for a slight upward moderation to 4.21 million seasonally adjusted, annualized units from 4.19 million posted in March. This number was something of a disappointment for the housing market, however, as February’s strong 4.38 million units looked to bring us out of a year-long doldrums period. However, continued high mortgage rates are keeping a damper on this market until rates start coming down.

NVIDIA (NVDA - Free Report) posts earnings after today’s close. It is not only the most highly anticipated earnings report of the week, it is one of the most closely watched (and traded-on) reports of the entire earnings season each quarter, coming as it does so conspicuously late in the reporting cycle. You’ve likely already heard of the massive earnings ands sales gains the company is expected to deliver (+400% earnings, +230% revenues), which goes a long way toward explaining the company’s still-high valuation even after the share price has risen +200% over the past year. But the proof is in the pudding, as they say: we will pay close attention to the results this afternoon.

Target (TGT - Free Report) posted a slight miss on Q1 earnings this morning. Earnings of $2.03 per share was 2 cents below consensus (which was the identical print, $2.05 per share, in the year-ago quarter) while revenues were just in-line with expectations to $24.53 billion. The company cited a familiar theme among retailers of late: a reticence for high consumer spending on food and home essentials.

We’ve seen price pullbacks in places like Walmart (WMT - Free Report) and Costco (COST - Free Report) , which looks to tighten prospects for Target going forward. Shares have given up total year-to-date gains at this hour, -9% in the pre-market. For more on TGT’s earnings, click here.

Williams-Sonoma (WSM - Free Report) , meanwhile, blew away Q1 earnings estimates. Earnings of $4.07 per share spun circles around the $2.78 Zacks consensus, whereas revenues came in-line with estimates at $1.66 billion. Same-store sales slipped -4.9% in the quarter (see the note on consumer spending in the Target paragraph above), but these were anticipated down -6.2%.

Full-year guidance was affirmed for the parent of Pottery Barn, West Elm, etc., and the company is now on a six-quarter positive earnings surprise streak. Shares are up +8% on the news, adding to the eye-opening +54% year to date.

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