Target, Home Depot, Palo Alto report earnings this week.
The stock market had its best week since a 90-day pause on the reciprocal tariffs were announced more than a month ago. For the week ended May 16, the Nasdaq Composite soared 7.2%, the S&P 500 jumped 5.3%, the Dow Jones Industrial Average spiked 3.4%, and the Russell 2000 increased 4.4%.
The major catalyst last week was the announcement of a 90-day pause in reciprocal tariffs between the U.S. and China. Stocks also rose on good economic news, as CPI inflation dropped to 2.3% in April, representing a 4-year low.
The Nasdaq is now down only 1% year-to-date at 19,104, after being down more than 20% and in bear market territory in early April.
The S&P 500 is up 1% for the year at 5,936, approaching the all-time closing high of 6,144 set on February 19.
The Dow is flat for the year at 42,568, while the Russell 2000 remains down 6% year-to-date, but has recovered since dropping more than 20% in April.
Moody’s downgrades U.S. credit rating
However, markets opened this week lower, with all of the major indexes dropping on Monday, led by the Nasdaq down 102 points. The Dow was off 80 points, while the S&P 500 and Russell 2000 each fell about 20 points.
The catalyst was Moody’s downgrading the United States’ long-term credit rating to Aa1 from Aaa and changed the outlook to stable from negative.
Moody’s citing the rising U.S. debt, caused by higher federal spending and increased tax cuts, which have reduced government revenues.
“As deficits and debt have grown, and interest rates have risen, interest payments on government debt have increased markedly,” Moody’s analysts’ said.
That would be exacerbated if the 2017 Tax Cuts and Jobs Act if extended, which would add around $4 trillion to the federal deficit over the next decade. The bill to extend it is currently working its way through Congress,
“As a result, we expect federal deficits to widen, reaching nearly 9% of GDP by 2035, up from 6.4% in 2024, driven mainly by increased interest payments on debt, rising entitlement spending, and relatively low revenue generation. We anticipate that the federal debt burden will rise to about 134% of GDP by 2035, compared to 98% in 2024,” Moody’s wrote.
Moody’s added that despite the country’s “significant” economic and financial strength, “we believe these no longer fully counterbalance the decline in fiscal metrics.”
Home Depot, Palo Alto, Target highlight earnings this week
First quarter earnings season is slowing down, but there are still some significant earnings to watch this week.
Among them are leading retailers Home Depot (NYSE:HD), which reports Tuesday morning, and Target (NYSE:TGT), which posts earnings Wednesday afternoon.
Analysts anticipate Home Depot to generate $39.1 billion in revenue, which would be up 7.5% year-over-year, and earnings of $3.59 per share, which would be down 1.1%.
The Street expects Target revenue to amass revenue of $24.4 billion, down 0.4% year-over-year, and earnings of $1.70 per share, down 16.3%.
Investors will be watching these retailers, along with others who post this week, for the impact of tariffs. Just last week, Walmart said it will have to raise prices due to tariffs.
Also, some big tech names are reporting earnings, including cybersecurity company Palo Alto Networks (NASDAQ:PANW) on Tuesday after the market closes. Analysts are anticipating revenue of $2.3 billion, up 15% year-over-year, and adjusted earnings of 77 cents per share.
Also, Snowflake (NYSE:SNOW), a data storage provider, releases its earnings Wednesday after the market closes. Analysts expect revenue to spike revenue 21% to $1.01 billion and earnings to rise 50% year-over-year to 21 cents per share.
There isn’t much in the way of big economic news this week, but several members of the Federal Reserve will be speaking at various events throughout the week.
