Stock Market Today: November 18, 2021
William G. Ferguson | 11/18/2021
Before The Bell - This morning, a number of earnings releases have caught the attention of Wall Street. The latest quarterly results from technology giants NVIDIA (NVDA) and Cisco Systems (CSCO) after yesterday’s closing bell are garnering a mixed reaction. Shares of NVIDIA are up nicely in pre-market action after the semiconductor giant beat expectations, with revenue jumping 50% year over year, while the stock of Cisco Systems is moving in the opposite direction after the networking supplier and Dow-30 component reported in-line results, but issued weaker guidance. This morning, Alibaba (BABA) stock is pointing lower after the company’s profits tumbled last quarter, the result of Chinese regulators cracking down on China-based tech companies. In the retailing sector, shares of department store operators Kohl’s (KSS) and Macy’s (M) are up nicely on strong quarterly results and increased forecasts.
In general, the focus of Wall Street has been on the retailing sector this week, with a number of the industry’s dominant players reporting their latest quarterly results, including Walmart (WMT) and The Home Depot (HD). The October retail sales report also increased the attention given to the retailers in a week that has overall been rather light on both the economic and earnings news. The stronger-than-expected retail sales gain of 1.6% last month quelled some of the concerns investors had last week following the hotter-than-expected producer and consumer pricing data and a dour report from the University of Michigan on consumer sentiment, which fell to a 10-year low this month. This morning, the Labor Department reported that initial weekly jobless claims fell to a pandemic-era low of 268,000, and the Philadelphia Fed Manufacturing Index rose sharply last month. The equity futures, which were up modestly, but off of earlier morning highs, leading into the economic news, are holding their gains following the releases.
The profit reports from the retailers have made for mostly good reading, with the aforementioned store chains, as well as their competitors Target (TGT) and Lowe’s (LOW), handily beating expectations. The stocks of the home-improvement twins, The Home Depot and Lowe’s, hit all-time highs during yesterday’s bearish session. However, shares of the mass merchandisers Walmart and Target have not fared as well, as investors were a bit unnerved by decreases in each company’s margins, as they strive to keep prices for their merchandise lower than the competition as inflation rises. Meanwhile, fellow retailing behemoth Amazon.com (AMZN) was in the news, announcing that it plans to stop accepting Visa (V) credit cards as a form of payment in the United Kingdom due to what they feel are exorbitant card fees. Visa stock fell sharply on the news and was responsible for a big chunk of the 211-point decline in the Dow Jones Industrial Average.
While many Wall Street pundits believe that the big retailers will perform well during the all-important shopping season, as they are best positioned with the inventories to meet strong consumer demand, investors looking for retail sector exposure may have to be nimble, as a number of the retailing stocks are looking a bit expensive on a price-to-earnings basis. One way to play this upcoming holiday season from an equity market standpoint may be to take a look at some of the “buy now, pay later” financial services companies, like Affirm Holdings (ARFM) and Square (SQ), as estimates indicate that nearly two-thirds of the millennial generation don’t own a credit card. They may be best positioned to take advantage of the health of consumers who have seen their savings accounts swell during the pandemic and will likely be spending more this holiday shopping season. Credit card processor MasterCard (MA) estimates that next week’s Black Friday sales will be up 20%, year over year.
Yesterday’s declines in the major equity averages were likely the case of some profit taking following Tuesday’s notable move to the upside. Investors, who have increased their number of defensive-oriented holdings in recent sessions (gold prices continue to firm), also are a bit nervous about the rising inflation data and what impact the higher prices may have on holiday shopping; the forthcoming decision from President Biden on who will lead the Federal Reserve and what impact it may have on the central bank’s monetary policy decisions; the fast-approaching debt-ceiling negotiations on the highly partisan Capitol Hill; and reports of some selective shutdowns in parts of Europe that have seen a surge in COVID-19 Delta variant cases.
From a sector perspective, it was a difficult session yesterday for the financials, which were hurt by the Visa news and a weak performance from banking giant Goldman Sachs (GS). A pullback in yields on the long end of the fixed-income curve following a few weak Treasury bond auctions also is hurting the financials. Likewise, the energy stocks were under selling pressure, hurt by a drop in crude quotations both here and abroad; that trend is continuing this morning. An industry report detailing an expected rise in near-term crude oil stockpiles, as OPEC+ begins to increase supplies, is pushing prices lower. Reports that President Biden has asked the Federal Trade Commission to investigate inappropriate behavior by the oil companies also weighed on the performance of the energy sector. This gave a boost yesterday to some of the transportation stocks and those industries that rely heavily on fuel to run their businesses.
For those investors who are concerned about some of the possible aforementioned economic and political uncertainty on the horizon, they may want to look at the stocks ranked 1 (Highest) and 2 (Above Average) for Safety by Value Line. Those groups have historically outperformed the market when volatility is on the upswing. Investors should note the recent soft underbelly of the S&P 500 Index; weaker performance by many members of the cap-weighted Index, which is more influenced by the larger components, is being masked by the strength of the mega-cap technology stocks that have performed very well over the last few weeks, including during yesterday’s down session. – William G. Ferguson
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.