D&D Note (5.26.2022) ~ Markets Rally On Strong Retail Earnings ~ #stockmarket

D&D Note (5.26.2022) ~ Markets Rally On Strong Retail Earnings ~

Investors sighed a bit of relief after a spout of recent Retail Earnings beating on earnings. Many were worried about the American consumer after the disappointing Target and Walmart earnings.

Last night Williams Sonoma reported and smashed same store sales boosting the stock 15% in after hours trading last night. This showed that the high end luxury consumer is still strong.

Today we saw further follow through in positive earnings with Dollar Tree up 21%, Macy’s up 19%, and Dollar General up 13%. These Retail companies range from the low to high end consumer. Where Target and Walmart just one-off abnormality’s?

Costco beat on earnings but didn’t blow it out of the park causing it to slip in the after hours down -2.69%. Although the stock rallied during the session today into after market earnings so only gave back some of todays advance.

What will the next earnings season come July look like after a dismal May for corporate earnings due to the consumer all going on vacation? Will the driver of the American economy (the consumer) still have purchasing power post globe trotting in May?

Chipmaker Nvidia reported earnings last night and provided a weaker 2Q guidance which caused the stock to decline in after hours last night, however the stock rallied today up 5.35%.

Digital Advertising company The Trade Desk rallied today up 5.83% after Q2 reconfirming guidance. This helped lift other online advertising stocks such as Snap up 4.59%, Meta (Facebook) up 4.24%, Pintrest up 3.39%, Alphabet (Google) up 2.50%. This after Snap early this week spooked the advertising world after guiding down their Q2 forecast just 1 month after reporting original guidance.

Twitter deal on/off? According to Twitter the deal is going through at original share price of $54. However most investors have a feeling Elon Musk will renegotiate down to $42 a share, but not ultimately walk away. It’s best for investors to sit on the sideline when it comes to Twitter and enjoy the circus.

Bitcoin continues to hover at the bottom end of recent trading range around $29k. The coin likely will not break down further in near term but also not likely to advance back to high end of the trading range of $40k in the coming days. Most likely crypto in general will trade sideways for now.

Market Knowledge Tip:

The stock market is a future discounting mechanism usually looking 6-12 months into the future. Meaning if a recession happens in the future it will get priced into today’s stock market (creating “the bottom“). Then markets will rally into the actual recession, to then crash when the recession hits. Then begin pricing in the next 6-12 months to rally back up again.

The recession cycle is often due to the “boom bust cycle” caused by the FED raising and lowering interest rates. Now we also have Quantitative Tightening QT opposed to Quantitative Easing QE. Quantitative Easing is when the FED buys treasuries and mortgage back securities (also called the FED Put), and has been conducting QE since the great financial crisis of 2008-2009. What we have now is Quantitative Tightening where the FED is now selling treasuries and mortgage back securities, no longer the buyer of last resort propping up the markets.

Closing markets (as of 5:00pm PST)

DOW up 1.60%

S&P 500 up 1.98% (4,057.84)

NASDAQ up 2.67%

VIX down 3.07% to 27.5

10 Year Note UNCH to 2.763%

Oil up 0.044% to $114.14 a barrel.

Gold up 0.114% to $1849.70 an ounce.

Bitcoin down -0.75% to $29,226.72

Ethereum down -7.11% to $1,795.80

~ Dave James / Principal Trader and Market Strategist