What to know today

  • But is it a cooling trend?
  • NFLX gets its NFL fix.
  • WMT reports earnings today.
markets

Let’s Talk When It’s a Trend

The Fed needs to see more inflation data like this.

At 1:30 p.m. ET the S&P 500 read 5,299.20, up 52.52 points, or almost exactly 1.00 percent, for the day.

It looks like almost everybody’s getting what they want this week.

The May rally is intact. The Consumer Price Index did in fact cool in April. Retail sales were softer than expected, though, but in this context that’s OK, right…

And the major indexes are all near new highs.

Investors, traders, and speculators are pricing in a rate cut that portends the earnings slowdown they’ll price out in a few months.

The Nasdaq Composite $NDX, the Russell 2000 $RTY, the S&P 500 $SPX, and the Dow Jones Industrial Average $INDU were all up around 1 percent on May 15, 2024.

That’s one way to look at it.

The other way to look at it is that fresh new highs give way to fresh new highs. That’s just the way the long-term trend and its underlying math work.

And this is also the first time this year that CPI wasn’t hotter than forecast.

The fed funds futures market is now pricing in two rate cuts in 2024, resolving tension between one and two cuts as of Tuesday.

Core CPI rose 0.3 percent in April, down from 0.4 percent in March and the smallest increase since December. It was 3.6 percent on a year-over-year basis, the lowest rate since April 2021.

On Tuesday, Federal Reserve Chair Jerome Powell said he and his colleagues “need to be patient and let restrictive policy do its work.”

It will take more incoming data to convince them, certainly.

But, for now, it looks like at least a little work is getting done.

deep dive

A Football Fix

You can’t have “NFLX” without “NFL.”

Netflix $NFLX will livestream two NFL games to global audiences on Christmas Day 2024 under a new deal revealed as part of the league’s full-season schedule announcement on Wednesday.

Putting the NFL in NFLX sent the share price as high as $624.10, up 1.70 percent, though it settled down and traded as low as $609.10 after the lunch hour.

That investors, traders, and speculators have been pricing in this news as part of NFLX’s 26 percent-plus year-to-date run is a fair assessment.

“This is 100 percent consistent with what we expected,” says Michael Nathanson, the co-founder and senior managing director of research firm MoffettNathanson, “and follows the model developed by basic cable to move up the consumer value chain by adding live sports.”

Nathanson’s firm researches trends in media, communications, and technology for institutional investors.

Netflix $NFLX has signed an exclusive agreement with the NFL to livestream games on Christmas Day for three years.

Still, this announcement is going to leave a mark, according to sports media specialist Richard Dietsch of The Athletic.

“Wednesday represented a seismic shift for the streaming giant with the announcement that it has landed exclusive rights to stream two NFL games on Christmas Day 2024,” Dietsch writes.

Netflix will also air a game on Christmas Day in 2025 and 2026 under the three-season deal.

Patrick Crakes, a sports media consultant and former senior executive at Fox Sports, said “Netflix is officially in the feel-things-out stage.”

Responding to a question about NFLX’s sports strategy in April, co-CEO Ted Sarandos said the company’s “North Star is to grow engagement, revenue and profit.”

“If we find opportunities to drive all three of those,” Sarandos said, “we will do that across an increasingly wide variety of quality entertainment.”

deep dive |
May 16, 2024

A Football Fix

RETAIL

What’s So Interesting About WMT

Walmart is the biggest of big box retailers.

Walmart $WMT, which will report fiscal first-quarter earnings at 8:00 a.m. ET, is a fascinating chart right now.

The stock is trading within 3 percent of a new split-adjusted all-time high. But what I’m staring at is that gap-down on big volume last November 16.

That day, management warned of US consumers acting more cautious ahead of the holidays due to higher interest rates and reduced household savings. Sales were “somewhat uneven” the previous two months, and WMT shed more than 8 percent.

As you too can see, WMT recovered all of that empty space, created some more to the upside with a gap up in February, and is now testing its limits in this market.

The February surge was a function of an expectations-beating fourth-quarter earnings announcement that included the company’s biggest dividend increase in more than a decade and an expectations-beating 2024 sales forecast.

The stock also split on a three-for-one basis. And the retailer also announced the acquisition of TV maker Vizio during the quarter.

It’s been eventful.

Management’s commentary this time around will be particularly interesting in light of recent retail sales data and fellow big box retailer Home Depot’s $HD top-line miss versus analyst expectations for its first-quarter revenue.

Walmart $WMT will report first-quarter earnings at 8:00 a.m. ET on May 16, 2024.

HD said sales were down 2.3 percent year over year, though adjusted earnings per share beat expectations. Foot traffic was down 1 percent, ticket sizes were down 1.3 percent, and same-store sales were down 2.8 percent.

CEO Ted Decker cited “a delayed start to spring and continued softness in certain larger discretionary projects" for the sales miss.

Analysts expect WMT to report 4.78 percent year-over-year growth in sales and 7.25 percent growth in adjusted EPS. Same-store sales are forecast to rise 3.42 percent on higher foot traffic and ticket size.

From the Research Desk, we learn that Deutsche Bank analysts rate WMT a “buy” with a 12-month price target of $70. They see management’s efficiency moves providing a profit boost this year.

Margin expansion is management’s plan for the next five years, with profit growing faster than sales.

D.A. Davidson also rates WMT a “buy,” its 12-month target $69. The stock is one of D.A. Davidson’s “Best of Breed” recommendations – a list that includes industry leaders with favorable risk-reward setups.

WMT, which occupies a dominant position in the retail space and consistently delivers for shareholders, is undervalued at current levels, according to D.A. Davidson, relative to a 12-month target of $70.

Evercore recently reiterated its “buy”rating and added WMT to its “tactical outperform” list, with a 12-month price target of $66.

The firm expects the retailer to report strong first-quarter results, helped by an effective digital strategy, a healthy membership program, and further deployment of automation initiatives.

Thirty-six Wall Street analysts rate WMT a “buy,” four rate the stock a “hold,” and not one rates it a “sell.” The consensus expects the share price to rise 10 percent over the next 12 months.

Keep an eye on WMT today. It might get interesting.

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