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“High expectations are the key to everything.” – Sam Walton
With Walmart’s (WMT) earnings crossing the tape this morning, we have finally reached the unofficial end to earnings season. Despite high investor expectations, it was generally a positive period for the equity market, although initial stock reactions to earnings reports haven’t been particularly positive. The key to the tepid initial reactions of stocks reporting, as Sam Walton once said, is high expectations. When investors and analysts are expecting good news, it sets the bar high. The key to the market’s ability to post positive returns during earnings season was the fact that the economy has been hanging in just fine, COVID trends are moving in a more favorable direction, and the FOMC continues to prime the pump.
WMT’s reported weaker than expected headline EPS this morning, and the stock is trading down over 4% on the news. While 4% may not sound like much for the typical stock reporting earnings, for WMT, it represents a pretty significant move. Historically, the stock has only moved up or down 2.6% on the day it reports earnings, and going back to 2001 there have only been two other times where the stock saw a larger downside gap – 2/20/18 (-7.4%) and 8/17/07 (-4.6%).
Futures are indicating a lower open today as the trend has been lower all night. A ton of economic data was just released, though, so we’ll see how the market digests them. Below, we provide a summary of how these reports came out relative to expectations. Overall, it was a mixed bag, and the initial reaction from futures has been muted.
Housing Starts – 1,580K vs 1,660K estimate
Building Permits – 1,851K vs 1,679K estimate
Initial Claims – 861K vs 770K estimate
Continuing Claims – 4,494K vs 4,450K estimate
Import Prices – 1.4% vs 1.0% estimate
Philly Fed – 23.1 vs 20.0 estimate
Be sure to check out today’s Morning Lineup for updates on the latest market news and events, earnings reports from around the world, economic data out Asia and Europe, an update on the latest national and international COVID trends, and much more.
Concerns over rising interest rates crept into the market yesterday as the 10-year yield briefly topped 1.30% hitting its highest level since last March. Heading into the opening bell, the 10-year yield is currently sitting right at 1.30%, but that is still well below levels seen a year ago right before the pre-COVID peak in rates and also 20 basis points below the dividend yield on the S&P 500. Which would you rather have? All else equal, higher rates are worse for equity prices than lower rates, but when you’re coming from record low levels of rates due to a complete shutdown of the US economy, some increase in rates can certainly be tolerated.