Coming off yesterday's weighty decline in the SPDR S&P 500 (SPY), with the market burdened by depressing housing data and the question of whether it really is the weather hampering the economy; Thursday was looking gloomy too, as the nation's most important brick and mortar retailer reported its earnings and said this year it would not meet current expectations for it. Needless to say, Wal-Mart (WMT) shares were lower by roughly 2.0% in the pre-market as the SPDR S&P 500 struggled for a slightly higher open. But a 10:00 AM ET economic report release solidified market upside for the day. We examine Wal-Mart's report and the market outlook for the day herein.
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Wal-Mart set lower expectations for its quarter at the close of January, but today it said 2014 would miss as well. That sent the stock lower in the pre-market and set the tone for further losses on a year that already sported a 6.6% drop against just a point decline in the SPDR S&P 500 .
Wal-Mart's January 31 notation that it would fall short of expectations on the quarter reset the stock lower this year and raised serious questions about the health of the consumer. The stock dropped 2.7% on that revelation and over the course of the following day's trading. When Wal-Mart said it would be at or below the low end of its fiscal Q4 guidance range of $1.60 to $1.70 per share, analysts were expecting $1.65. After the notice, Street expectations were reset to $1.59. Today the company made $1.60 before what it called "discrete items".
FY 2015 (Jan.)
$1.10 to $1.20
$5.10 to $5.45
Wal-Mart's fiscal fourth quarter report hurt the stock though, because it offered fiscal 2015 EPS guidance that fell short of analysts' views. The company's top end of its quarterly guidance range is three cents lower than analysts expected for FY Q1, and its full year expectation range reaches only to nine cents short of analysts' expectations.
The news is obviously bad for Wal-Mart, but it carries negative connotations for the market as well. Wal-Mart is the nation's most important brick & mortar retailer, if not the most important retailer still because of the challenge of Amazon.com and others. If Wal-Mart is experiencing business weakness, it very likely could be a symptom of broader economic weakness. That softness is reflected in other recent economic data points, but a debate is being waged as to the importance of this year's extraordinary weather on those recent data points.
Just yesterday, the SPDR S&P 500 dropped 0.7% on a day weighed down by poor January Housing Starts. The pace of housing starts declined to 880K, from 1.048 million in December; the result was far below the pace of 950K expected by economists. Permits declined as well, to 937K, from 991K, and short of expectations for 975K. We recently raised the question of weather impact on real estate this winter, and it's an argument that carries to consumer spending and other economic activity as well. This latest Wal-Mart revelation expands and complicates the argument.
Also Driving the Markets Today
Today, Leading Economic Indicators data is supporting stocks. It was reported up 0.3% in January, better than December's stale state and the economists' consensus expectation for 0.2% growth in January. Though, the Conference Board, which reports the data, said consumer activity would have to improve from current conditions for the economy to expand at a faster rate in 2014. It also noted that extraordinary weather was likely impacting growth.
The Consumer Price Index showed no sign of inflation, and that's good news for markets as it gives the Fed freedom to halt or reverse tapering if the economic slowing is on more than the weather factor. Bloomberg's Consumer Comfort Index measures consumer sentiment on a weekly basis, and it has drifted lower lately. Today, it held about steady at -30.6, versus the prior measure of -30.7.
Jobless Claims were reported at 336K this morning for the most recent period, a rate that is about where this data point had been running of late; it's a bit too high in my opinion, to support net job creation in the current economic environment.
The PMI Flash Manufacturing Index and the Philly Fed Index offered conflicting message about manufacturing this morning. The positively improved "flash" figure is a preliminary measure and could be revised, but it carries across the national arena, versus the Philly Fed's regional measurement, which was reported deteriorated and in the negative. I would expect these two figures are therefore netting against each other in terms of market impact Thursday.
Other Active Stocks Affecting the Market
Tesla shares are higher by 14% approaching 11:00 AM ET, because of the company reported stellar EPS results and offered enthusing guidance. Tesla earned $0.33 a share after adjustments, beating Wall Street's outlook for $0.23, according to Factset. What was probably more important than that was the fact that the company offered guidance indicating it could ramp up unit sales volume of the Model S by 55% in 2014. It's lifting its production capacity and sees international sales growth in Europe, China and across the globe surpassing its U.S. sales. Elon Musk appeared this morning in interviews and addressed rumors about his discussions with Apple (AAPL), but both he and I would not entertain any takeover theory. I think it is likely Musk wants to be involved with Apple's evolution across platforms, and somehow include Apple in its automobiles.
Facebook's big spend of $19 billion dollars for the text messaging app WhatsApp has the market talking today. WhatsApp has a larger active user base than Twitter (TWTR) and is growing faster. Twitter is valued today at $30 billion. FB shares are down more than 2% approaching 11:00 AM ET, but I believe the market is mistaken on the issue, sort of like how Google (GOOG) was criticized for its YouTube and Android buys.
Into 11:00 AM ET, the SPDR S&P 500 was up 0.4%, overcoming Wal-Mart's drag and gaining on what I believe is the Leading Economic Indicators contrast to yesterday's housing data. Enough question about the supposed economic softness is therefore in place to allow stocks upside today. Also, the lack of inflation in the Consumer Price Index data allows for Fed action if the economy is indeed slowing. So, in plain English, stocks have earned their gained ground today. Heading into the close, though, the market may anticipate another poor Existing Home Sales report which is on collision course to strike us Friday morning.