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Pre-Markets Sell Amid "Best-Case Scenario"

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Wednesday, May 29th, 2024

Pre-market futures are ripping lower today. With no major economic reports out ahead of the opening bell, and scant — if important — retail earnings releases, we can for now suggest that some profit-taking, especially off the record-high close of the tech-heavy Nasdaq yesterday, is the reason for the current pullback. The Dow has thus far shed -243 points, the S&P 500 is down -36 and the Nasdaq -141 points at this hour.

This afternoon, we’ll get a new Beige Book from the Fed — the first in the past six weeks. Last time around, we saw slow growth or a flat economy in all 12 districts reporting, with only New York and Philadelphia without having made gains but none of the 12 reporting a loss. Of the 10 districts that reported growth, none was significantly high; it’s the same slow-growth pattern the Beige Book has documented since February of this year. Prices have held steady and employment has been flat.

Welcome to the best-case scenario: a “soft landing” for the U.S. economy. Remember six months ago or so, when top analysts were forecasting a recession by mid-2024; we’ve thankfully managed to avoid crashing into negative growth, thanks both to Fed initiatives and proactive investment in the national economy by the federal government. While Americans still feel the pinch of inflation, especially on the middle and lower economic strata, huge improvements have been made over the past two years. But here’s what they don’t tell you about a soft landing: it generally means you’ve got to ride in the plane for longer.

After today’s close, we will see some important earnings reports. These include, perhaps surprisingly, tech plays, including in the A.I. space. Salesforce (CRM - Free Report) , Hewlett Packard (HPQ - Free Report) and (AI - Free Report) all report this afternoon, and all bring Zacks Rank #3 (Hold) ratings into their prints. Under the hood, we’re seeing some different dynamics: while Salesforce expects to grow +40% on its bottom line and +10% on its top, looks to post -100% earnings growth, while HP’s growth numbers are relatively flat.

Dick’s Sporting Goods (DKS - Free Report) outpaced expectations in its Q1 report this morning. Earnings of $3.30 per share easily surpassed the $2.94 in the Zacks consensus (though 10 cents per share lower that the year-ago quarter), while $3.02 billion in quarterly revenues beat estimates by +2.58%. The specialty retailer has only missed on earnings twice in the past five years. Shares are up another +7% in early trading as guidance has raised as well; the stock had already gone up +32.7% year to date, nearly tripling the S&P 500’s performance. For more on DKS’ earnings, click here.

Abercrombie & Fitch (ANF - Free Report) also beat estimates demonstrably ahead of today’s open. Earnings of $2.14 per share was nicely ahead of the $1.66 consensus estimate, with $1.0 billion in quarterly revenues reaching $1.0 billion for the first-time ever. In fact, its +21% year-over-year revenue growth is the highest Q1 gain in the company’s history. A&F brands, which also include Hollister, Gilly Hicks and others, grew +31% in the quarter. Shares are up nearly +5% ahead of the opening bell.

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