Markets Today: Stocks Undercut as Weak Earnings Report from Target Weighs on Retailers

Morning Markets

December S&P 500 futures (ESZ22) this morning are down -0.14%, and December Nasdaq 100 E-Mini futures (NQZ22) are down -0.55%.  

A slump in retailer stocks in pre-market trading is weighing on the overall market, with Target plunging -14% after reporting weaker-than-expected Q3 adjusted EPS and forecasting a decline in Q4 comparable same-store sales.  Also, Advanced Auto Parts sank -13% in pre-market trading, and TJX Cos dropped more than -4% after reporting disappointing Q3 earnings results.

Stock indexes initially rose in overnight trading on reduced geopolitical risks after NATO said it saw no indication that a missile that struck Poland was an intentional attack. NATO said the missile was likely fired by Ukrainian air defenses to defend Ukrainian territory against Russian cruise missile attacks.

Stocks also fell back this morning as bond yields rose on concern that today’s stronger-than-expected U.S. Oct retail sales report will cause the Fed to remain aggressive in raising interest rates.  The 10-year T-note yield this morning is up +2.0 bp at 3.790%.

U.S. Oct retail sales rose +1.3% m/m, stronger than expectations of +1.0% m/m and the biggest increase in 8 months.  Also, Oct retail sales ex-autos rose +1.3% m/m, stronger than expectations of +0.5% m/m.

The U.S. Oct import price ex-petroleum index fell -0.2% m/m, the sixth consecutive month prices have fallen but a smaller decline than expectations of -0.8% m/m.

The Euro Stoxx 50 index today is down by -0.72%.  Economic concerns are weighing on European stocks today after the ECB said in its Financial Stability Review that record inflation is hurting consumers' ability to service debts, while Europe's worsening growth prospects threaten corporate profits.  Stock prices recovered from their worst levels on an easing of geopolitical risks after NATO said there is no indication of a deliberate attack and that the missile that landed in Poland was likely caused by errant Ukraine air defense.

ECB Governing Council member Muller said October's Eurozone record inflation reading showed continued price increases and the ECB should deliver another "substantial" increase in interest rates at next month's meeting.

Asian markets today settled mixed.  China’s Shanghai Composite closed down -0.45%, and Japan’s Nikkei Stock Index closed up +0.14%.

China’s Shanghai Composite index today retreated from a 2-month high and closed moderately lower. Concern that rising Covid infections in China will delay the reopening of the economy weighed on stocks after China reported 19,609 new Covid infections on Tuesday, the most in more than 6-1/2 months.  Homebuilders and property stocks also declined after today’s news that China Oct new home prices fell for the fourteenth consecutive month.  On the positive side, Chinese travel stocks climbed after the Ministry of Culture and Tourism said cross-provincial tours from high-risk Covid areas will be allowed.

China Oct new home prices fell -0.37% m/m, the biggest decline in 6-1/2 years, and the fourteenth consecutive month prices have declined.

Japan’s Nikkei Stock Index today closed slightly higher.  Japanese defense-related stocks rose after Poland said a Russian-made rocket fell on a village and killed two people.  Gains in the overall market were limited as negative economic news weighed on equities after Japan’s core machine orders and tertiary industry index unexpectedly fell.

Japan Sep core machine orders unexpectedly fell -4.6% m/m, weaker than expectations of +0.7% m/m.

The Japan Sep tertiary industry index unexpectedly fell -0.4% m/m, weaker than expectations of +0.6% m/m.

Pre-Market U.S. Stock Movers

Target (TGT) sank more than -14% in pre-market trading after reporting Q3 adjusted EPS of $1.54, well below the consensus of $2.15, and forecasting a decline to the low single digits for Q4 comparative same-store sales.  Other retailers also declined on the Target news, with Best Buy (BBY), Macy’s (M), and Dollar Tree (DLTR) all down more than -3%.

TJX Cos (TJX) dropped nearly -4% in pre-market trading after reporting Q3 net sales of $12.17 billion, below the consensus of $12.30 billion. 

Advanced Auto Parts (AAP) dropped more than -13% in pre-market trading after reporting Q3 adjusted EPS of $2.84, well below the consensus of $3.35.  The company also cut its full-year adjusted EPS forecast to $12.60-$12.80 from a prior estimate of $12.75-$13.25, weaker than the consensus of $13.01. 

Cruise line operators retreated in pre-market trading after Carnival announced a private offering of $1 billion of 5.75% convertible senior notes due December 1. 2027.  Carnival (CCL) is down more than -11%.  Also, Norwegian Cruise Line Holdings (NCLH) is down more than -4%, and Royal Caribbean Cruises Ltd (RCL) is down more than -2%. 

Home Depot (HD) slid more than -1% in pre-market trading after Raymond James downgraded the stock to market perform from outperform. 

Medtronic Plc (MDT) fell more than -1% in pre-market trading after Deutsche Bank downgraded the stock to hold from buy. 

Lowe’s (LOW) climbed more than +2% in pre-market trading after reporting Q3 adjusted EPS of $3.27, stronger than the consensus of $3.09, and raising its full-year adjusted EPS estimate to $13.65-$13.80 from a previous estimate of $13.10-$13.60.

Xylem (XYL) gained more than +1% in pre-market trading after Atlantic Equities LLP upgraded the stock to overweight from neutral. 

Discover Financial Services (DFS) rose more than +1% in pre-market trading after it said the investigation into its student-loan servicing practices had been completed, and it will resume stock buybacks.

Today’s U.S. Earnings Reports (11/16/2022)

Bath & Body Works Inc (BBWI), Cisco Systems Inc (CSCO), Copart Inc (CPRT), Lowe's Cos Inc (LOW), 

NVIDIA Corp (NVDA), Target Corp (TGT), TJX Cos Inc/The (TJX).

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