Confirmation of the health of the US economy helped Wall Street ignore the shock slide in quarterly earnings from Walmart, the world’s biggest retailer and yet another warning from Fed chair, Jay Powell, that the central bank won’t hesitate to put up interest rates to bash inflation lower.
Instead of sparking another day of selling in the wake of the Walmart shock and then Powell’s comments, we saw the second solid session in a row for Wall Street and commentaries about how the sell-off may be over for the time being as exhausted investors assess their positions.
Of course there are always irritants – Elon Musk’s wriggling to avoid his too costly $US44 billion bid for Twitter – is one, but offsetting that is a better feeling about the health of the US economy and the acceptance that higher interest rates won’t necessarily crunch the wider economy.
Since the Fed turned hawkish last month and pushed the federal funds rate up 0.50% with more increases of the same size promised, investors, analysts and economists have fretted that the economy could slide into recession as the Fed tightens too quickly and stuffs things up.
Tuesday saw several events upset that gloom and doom and suggest the sell-off may have ended for a while and a bottom reached.
First up Walmart surprised with a slide in quarterly profit and a downgrade in 2023 earnings, even though revenue rose. The culprit, higher costs, inflation, fuel and transport – many of them willingly taken to enable the world’s biggest retailer to have enough stock on hand to service its customers.
Walmart shares fell more than 6% in early trading and then fell again to end down 11.4% (the biggest one day fall since 1987 for the stock), but Wall Street bounced and bounced well with the Dow up 1.3%, the S&P 500 and Nasdaq up more than 2%.
Boosting stock prices was the recovery in the interest rate sensitive megatechs. Shares of Microsoft Corp, Apple, Tesla Inc and Amazon gained between 2% and 5.1%, driving the S&P 500 and the Nasdaq higher.
But Home Depot, the biggest hardware and home handyman company, reported better than expected results, adding to the optimism.
Both results were out before trading and before the release of the April retail sales data which were much stronger than expected, with a significant upward revision in the March data.
Retail sales rose 0.9% last month. Data for March was revised higher to show sales rising 1.4% instead of 0.5% as previously reported. April’s increase in retail sales, which reflected both strong demand and higher prices, was in line with economists’ expectations. Sales rose 8.2% on a year-on-year basis.
The increase in retail sales was led by higher receipts at car dealers which rebounded 2.2% after falling 1.6% in March. That offset a 2.7% fall in sales at service stations.
(While petrol eased briefly, they have surged in the past week to an average all-time high of $US4.523 a gallon as of Tuesday.)
Excluding petrol, retail sales rose 1.3%. Receipts at bars and restaurants, the only services category in the retail sales report, increased 2.0%. Clothing store sales gained 0.8% as many workers return to offices. Online store sales were up 2.1%. There were also strong gains in sales at electronics and appliance retailers as well as furniture outlets.
And not even Fed chair, Jay Powell again making clear the central bank is very ‘hot to trot’ on inflation, could not change market sentiment on Tuesday.
Powell said he still hopes the Fed can achieve its inflation goals without tanking the economy.
“You’d still have a strong labor market if unemployment were to move up a few ticks. I would say there are a number of plausible paths to have a soft as I said softish landing. Our job isn’t to handicap the odds, it’s to try to achieve that,” he said.
He added that “there could be some pain involved to restoring price stability” but said the labor market should remain strong, with low unemployment and higher wages.
And the best guide that attitudes were no longer so gloomy – the Aussie dollar bounced back over 70 US cents in US trading to trade around 70.29 US cents. That’s a rebound from the year low of 68.56 last Thursday amid the gloom about rates, recession and the impact of the Chinese Covid lockdowns.
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Warren Buffett chipped in with a boost of his own – Berkshire Hathaway’s quarterly investment managers activity report late Monday revealed a new big stake in Citigroup and 10% of Paramount Global (the new name for ViacomCBS, the owners of the Ten Network in Australia).
That had the now usual impact in the sharemarket – Citi shares leapt 7.5% and the enthusiasm spilled over to other bank shares – JPMorgan shares were up 3.3% (Buffett had a stake in this bank up till last year) and shares in Bank of America – where Berkshire is the largest shareholder, rose 3.3% as well. Morgan Stanley shares though only managed a small rise of less than 1%.
But the biggest move was in the shares of ParamountGlobal – up more than 15%.
