After a three-session rally from Tuesday through Thursday that almost erased the 700+ point decline suffered on Monday, U.S. stocks ended Friday’s session on a downbeat note as reports emerged that trade negotiations between the U.S. and China had reached a stalemate.
“Scheduling for the next round of negotiations is “in flux” because it is unclear what the two sides would negotiate, two sources briefed on the status of the talks said,” according to CNBC. “China has not signaled it is willing to revisit past promises on which it reneged earlier this month, despite showing up for talks in Washington last week.”
This lingering uncertainty with China makes it tough for investors to be long equities and take on additional risk given that it is unclear whether China will slap on more retaliatory measures of its own. The talks ended on the heels of the Trump administration’s increased scrutiny of Chinese telecom companies. Even more worrisome is the fact that China's method of retaliation may not come in the form of tariffs.
Jim Kelleher, analyst at Argus, sees a scenario where Chinese companies and consumers, at the urging of Chinese officials, would be discouraged from doing business with big-named U.S. companies. This risk caused a mini selloff Friday as equities closed mostly lower, lead by a 98.68-point decline in the Dow Jones Industrial Average which closed at 25,764 — its fourth straight weekly drop. The S&P 500 fell 0.6% to 2,859.53, while the Nasdaq Composite was down 1% at 7,816.28.
But as I noted in last week’s preview piece, particularly as it relates to trends in the U.S. economy, there are tons of reasons to remain optimistic about where stocks are headed. With about 90% of companies already reporting financial results, overall Q1 numbers have been positive, especially when combined with confident guidance. More results are on tap this week from major retailers, which could put the strength of the U.S. economy back in focus. Here are a few names to keep an eye on.
Home Depot (HD) - Reports before the open, Tuesday, May 21
Wall Street expects Home Depot to earn $2.19 per share on revenue of $26.39 billion. This compares to the year-ago quarter when earnings came to $2.08 per share on revenue of $24.95 billion.
What to watch: The home improvement retailer is expected to have a stellar year in 2019. Despite the tough comparisons of 2018, analysts project 2019 to be not only a good year for home remodeling projects, but also repairs. Elsewhere, home-price growth has slowed for the last several months, while the number of existing home sales has also moderated. On Tuesday analysts will focus on the extent Home Depot, which has invested heavily in technology and fulfillment, can deliver strong same-store sales growth and positive guidance.
Lowe’s (LOW) - Reports before the open, Wednesday, May 22
Wall Street expects Lowe’s to earn$1.34 per share on revenue of $17.7 billion. This compares to the year-ago quarter when earnings came to $1.19 per share on revenue of $17.36 billion.
What to watch: With better-than-expected earnings results from Walmart (WMT) and other retailers, there’s optimism about what Lowe’s will reveal Wednesday. The company’s revenues are expected to be driven by positive same-store sales growth. These gains, meanwhile, could be offset by lost revenue as a result of the decline in the company's store count as the company’s decision to exit some of its non-core businesses. The company operated 139 fewer units as of the end of the fourth quarter. The store reduction, along with other initiatives, are aimed at improving the company’s merchandising and overall operational efficiency.
Target (TGT) - Reports before the open, Wednesday, May 22
Wall Street expects Target to earn $1.43 per share on revenue of $17.5 billion. This compares to the year-ago quarter when earnings came to $1.32 per share on revenue of $16.78 billion.
What to watch: Big box retail is not dead, as evidenced by the strong earnings results and forecasts just delivered from Walmart. Aside from the impressive bottom line beat, Walmart raised its full-year same-store sales forecast in the U.S., affirming the level of confidence it has despite concerns about trade war. Can Target keep up the pace? The company has seen its share price rise just 7% this year, trailing the S&P 500’s 14% rise. It will need strong top- and bottom-line results and solid digital growth to excite investors. Target’s digital revenue, which have grown 25% in the past five consecutive years, surged 36% in 2018.
Best Buy (BBY) - Reports before the open, Thursday, May 23
Wall Street expects Target to earn 86 cents per share on revenue of $9.13 billion. This compares to the year-ago quarter when earnings came to 82 cents per share on revenue of $9.11 billion.
What to watch: The technology-focused retailer is slowly differentiating itself from other retailers with investments in omni-channel offerings as well as transformation to its supply chain. These moves, along with its increased use of technology and automation, are aimed at improving the customer experiences, while driving cost cuts — all of which could strengthen its competitive advantage. So with its stock having fallen 1% over the past twelve months versus a 10% rise for the S&P 500, Best Buy offers tremendous value, especially when combined with its 2.70% dividend yield.
Hewlett-Packard Enterprise (HPE) - Reports after the close, Thursday, May 23
Wall Street expects the company to earn 37 cents per share on revenue of $7.4 billion. This compares to the year-ago quarter when earnings came to 34 cents per share on revenue of $7.47 billion.
What to watch: The company announced the acquisition of supercomputer designer Cray for $1.3 billion in cash. Earlier this month, Cray inked a $600 million contract to deliver what it calls an “exascale” supercomputer to the U.S. Department of Energy by the year 2021. This is one of several growth areas HPE could be targeting in the deal. HPE, which has seen its shares decline 17% over the past year, says Cray’s line of supercomputers will help it scale up its high-performing computing offering to government agencies, universities and enterprise customers. While the company has beaten Wall Street’s consensus earnings estimates in six of the previous eight quarters, the numbers themselves have been less-than stellar. On Thursday the company’s guidance will dictate what the stock does and how it believes Cray can boost the top line over the next 12 to 18 months.