Home Depot And Walmart’s Guidance Sober The Market

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In his Daily Market Notes report to investors, Louis Navellier wrote:

Home Depot and Walmart’s Sobering Guidance

Home Depot and Walmart’s guidance sober the market on the strength of the consumer.

Home Depot had negative same sales growth for the first time in years, albeit lower lumber prices swung the numbers hard, and Walmart gave a cautious outlook. Walmart had beats top and bottom and a good Christmas season as consumers trade down to discount chains.

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Walmart also had the benefit of major food sales which have seen higher prices. Walmart (NYSE:WMT) opened down but has since recovered to a small gain and is up 2.3% YTD.

Home Depot (NYSE:HD), however, also announced a plan to pay employees an additional $1B in a sign of wage inflation and is leading the Dow lower, down 5.5% today, down 5% YTD. The S&P is now down 50 points in February, but still up over 200 points (5.3%) YTD.

The NASDAQ is up 14 points for February and 1,212 points (11.6%) YTD. The Dow continues to underperform, now almost break even for the year and down 746 points in February.

Reaccelerating Inflation

The bond market is once again steering the boat, with the US 2-year now 4.7%, up 7bps on the day, and the 10-year at 3.92%, up 9bps, both the highs for the year, though off the highs for the morning.

The US dollar is dancing at 104, hitting 104.18 when interest rates were at a high. Natural gas, now at lows not seen since September '20, is leading energy names lower. Biden's surprise visit to Ukraine and Putin suspending compliance with the latest START nuclear treaty are heightening perceived geopolitical risks. The post-Covid bounce in China seems off to a slow start, though when it finally gets rolling may be a new source of inflation fears.


Don't Fight the Fed

On Wednesday, Fed minutes will give insight into the likelihood of a possible 50bps increase, and on Friday we get PCE and University of Michigan Inflation Expectations. While the 3 and 6-month inflation trends are down sharply, they are expected to be reaccelerating as reflected in the Fed Funds futures being 80bps higher than since the hit January jobs report came out.

"Don't Fight the Fed" is back on the front burner. Next, expect to hear how these higher rates are ballooning government budget deficits with higher interest expense, whose response is likely to be further spending to stimulate growth, which is at odds with the Fed's 2% inflation mission.

Stay cautious of valuations based on strong growth.

Coffee Beans

Between 1950 and 2000, life expectancy in Asia increased by more than 25 years, cutting the gap towards North America and Europe from more than 20 years to less than 10 years. By 2050, Asia is expected to have almost caught up with the Western world with its life expectancy reaching almost 80 years. Source: Statista. See the full story here.