That’s a Wrap - Q3 Earnings Seasons Closes Out Ahead of Black Friday

 | Nov 22, 2023 03:08

  • Some encouraging economic data (CPI, PPI) last week sustained markets, even as mixed Q3 results from US retailers began to pour in.
  • The post-peak LERI ended with a reading of 122, showing that CEOs remained uncertain throughout the season.
  • Retail closes out the third quarter season with results expected from Lowe's, Dick's, Nordstrom, Kohl's, Best Buy, and more. The final of the Magnificent 7, Nvidia is also scheduled to report.
  • Potential Surprises this week: Farfetch, Footlocker

    • Markets continued to rally for most of last week, before taking a breather on Thursday and Friday. The major indices are now up over 6% for November after a rough patch from August - October.

    Leading stocks higher during the first half of last week was encouraging data on inflation. Both the Consumer Price Index (CPI) and Producer Price Index (PPI) showed a continued cooling of inflation in October. CPI came in flat on a month-over-month (MoM) basis, while PPI fell 0.5% for the month, the lowest reading since April 2020. As a result, expectations for Fed rate cuts in 2024 have risen, with the CME Group's (NASDAQ:CME) FedWatch tool now baking in a 1% rate cut in 2024.

    Less of a bright spot last week was Retail Sales for October which fell 0.1%, the first monthly decline in 7 months. However, this was a smaller drop than economists were expecting at -0.3%), and excluding gas and autos that number actually turned positive at 0.1%. Still, it serves as a sign that consumers are inflation-fatigued and are feeling squeezed by interest rates that remain at a 22-year high, forcing them to rack up credit card debt and deplete savings.

    Another read on the US consumer came from Q3 retail earnings reports. While Q3 numbers mostly came in strong, there was some cautionary commentary regarding Q4 and the holiday shopping season. Such comments from Walmart (NYSE:WMT) seemed to spook investors the most when full-year guidance for EPS was given in the range of $6.40 - $6.48, lower than analysts expected. Walmart has been a favorite in this high-inflation environment due to the size of its grocery business which was bolstered as consumers focused on purchasing necessities. Both Walmart and TJX Companies (NYSE:TJX) said in remarks last week that the US consumer is in search of a bargain this holiday shopping season and will hold out for deals.

    As a result of better-than-expected retail results, the blended EPS growth rate for Q3 has grown to 4.3% vs. last week's 4.1%.

    h2 Corporate Uncertainty Closes Out the Q3 Season Relatively Unchanged/h2

    The official post-peak reading of the Late Earnings Report Index (LERI) released on November 10 showed that CEOs remained hesitant throughout the third quarter earnings season.

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    The Late Earnings Report Index tracks outlier earnings date changes among publicly traded companies with market capitalizations of $250M and higher. The LERI has a baseline reading of 100, anything above that indicates companies are feeling uncertain about their current and short-term prospects. A LERI reading under 100 suggests companies feel they have a pretty good crystal ball for the near term.

    The post-peak season LERI reading came in at 122, the third-highest reading since the COVID-19 pandemic. As of November 10, there were 114 late outliers and 84 early outliers.​