The major indexes staged a second consecutive sizable rally Thursday amid a number of encouraging retail reports and more signs that perhaps the recent downturn was a touch overdone.
Michael Reinking, senior market strategist for the New York Stock Exchange, noted an important potential sea change in yesterday’s trading – namely, Dick’s (DKS) and other retailers reversed early losses and led the market higher. “That type of price action where stocks rally despite ‘bad news’ suggested that expectations, at least in the short-term, had been sufficiently reset,” he says.
The retail industry then followed through on Thursday with some straight-up good news.
Discount retailers Dollar Tree (DLTR, +21.9%) and Dollar General (DG, +13.7%) both enjoyed double-digit pops on Street-beating earnings. The former, which also has Family Dollar under its corporate umbrella, earned an adjusted $2.37 per share last quarter to skate past calls for $2.00 per share, and raised its 2022 sales outlook to $27.8 billion-$28.1 billion from $27.2 billion-$27.9 billion previously. The latter topped earnings estimates by earning $2.41 per share (vs. $2.32 est.) and raised both its revenue and same-store sales guidance.
Upscale home-goods retailer Williams-Sonoma (WSM, +13.1%) piled on with top- and bottom-line beats, as did Macy’s (M, +19.3%), which also topped earnings and sales expectations and upped its profit forecast for 2022.
“The underpinning for today’s market climb higher suggests that last week’s doom and gloom about the all-important U.S. consumer might have been overdone, along with the dire recession headlines,” says Quincy Krosby, chief equity strategist for LPL Financial. He acknowledges that data suggest the economy is slowing and that the Fed is poised to deliver at least two more 50-basis-point rate hikes, “but the notion that the consumer – 70% of the U.S. economy – is on a spending strike, is overblown as earnings reports coupled with positive guidance indicate otherwise.”
Also help pushing stocks ahead were chipmakers Broadcom (AVGO, +3.6%), which announced a $61 billion deal to acquire virtualization and cloud firm VMWare (VMW, +3.2%), and Nvidia (NVDA, +5.2%), which cratered in Wednesday’s after-hours trade after forecasting revenue deceleration in its second quarter, but rebounded in Thursday trade.
They helped the Nasdaq Composite (+2.7% to 11,740) take the pole position in today’s rally, followed by the S&P 500 (+2.0% to 4,057) and Dow Jones Industrial Average (+1.6% to 32,637).
Other news in the stock market today:
- The small-cap Russell 2000 popped 2.2% to 1,838.
- U.S. crude futures shot up 3.4% to settle at $114.09 per share.
- Gold futures gained 0.1% to end at $1,847.60 an ounce.
- Bitcoin didn’t join the rally in the broader markets, slipping 0.9% to $29,362.18. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.) “The bubble in crypto tokens that started shortly after the Fed started its massive liquidity injection, continued to deflate,” says Jay Hatfield, chief investment officer of New-York based investment advisor Infrastructure Capital Management. “The Fed has already reduced the monetary base this year by $550 billion through open market operations and is likely to continue to reduce the base by up to another $1 trillion putting further pressure on speculative assets that benefited from the Fed’s inflation of the U.S. dollar.”
- Nutanix (NTNX) plunged 23.0% after the enterprise cloud platform reported earnings. In its fiscal third quarter, NTNX reported an adjusted loss of 5 cents per share on $403.7 million in revenue – both figures representing solid improvements over the year-ago results. Billings of $204.7 milion were also up on an annual basis. However, the company said it expects fourth-quarter revenue and billings below analysts’ consensus estimates, and it also lowered its full-year revenue outlook. “The biggest problem is NTNX’s outlook – supply-chain constraints are starting to impact hardware deliveries, ultimately postponing and delaying software purchases,” says CFRA Research analyst Janice Quek, who downgraded the cloud stock to Hold from Buy. “To a smaller extent, higher sales force attrition is also reducing productivity.”
- UBS Global Research analyst Cody Ross downgraded Kraft Heinz (KHC, -6.1%) to Sell from Neutral (Hold), saying the consumer staples stock lacks the pricing power needed to power through higher inflation. “We believe it will be difficult for KHC to pass through additional pricing next year and by that time, KHC will likely be battling trade down pressure as consumers’ budgets are squeezed further,” Ross writes in a note to clients. Most analysts are on the sidelines when it comes to KCH. While three Wall Street pros say it’s a Strong Buy, 14 have it at Hold, two say Sell and one says Strong Sell, according to S&P Global Market Intelligence.
An “Alternative” Way to Fight Volatility
One of the cleverest summations we’ve seen about whether the recent rally is fool’s gold comes from Steve Sosnick, chief strategist for brokerage firm Interactive Brokers:
“Here’s the paradox – if everyone is looking for capitulation [effectively, buyers giving up hope], it is another way of trying to figure out when the market has bottomed,” he says. “So if everyone is actively looking for a market bottom, it means that they haven’t thrown in the towel about stocks going up again. Thus, true capitulation only presents itself when people have stopped actively looking for it.”
And so far, while the bear market has been unpleasant, “we don’t see the sort of existential fear that accompanies capitulation,” he says.
We say hope for the best, but at least be prepared for less.
In recent days we’ve covered various forms of investor defense, from great stocks for an actual bear market to stalwart buy-and-hold 401(k) mutual funds that should pan out over the long run.
But another tack you can take is once-esoteric alternative strategies, such as long-short and market-neutral funds. Says our writer Andrew Tanzer: “Alternative strategies were previously available only to high-net-worth individuals, institutions or financial advisers. Today, a growing number of alternative strategies are available via mutual funds for mom-and-pop investors.”
Read on as we look at nine such alternative-strategy funds to keep calm in this roller-coaster market.