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Highlights from the past week

Market / Macro Economic Summary

I am never shy to make a bold pronouncement and I see an opportunity to do so now.  I believe the inflation bubble has popped/cracked and we will not see any further rate hikes by the Federal Reserve.  On Tuesday, the inflation reading for October was released.  The consumer price index (CPI) was unchanged, but the annualized rate fell from 3.7% to 3.2%, helped by a continued drop in gas prices. Since the September highs, the price of a barrel of oil has fallen by 20% and should continue to be a drag on next month’s figure as well. Core CPI, which excludes food and energy and is a preferred indicator for the Federal Reserve of the underlying trend, also moved lower, from 4.1% to 4.0%.  As should have been expected, the yield of the 10-year bond fell to 4.4%, from a recent high of 5%.  This helped propel the markets higher as the indexes hit a three-week winning streak.  On the week, the Dow Jones Industrial Average was up 1.9%, the S&P 500 was up 2.2% and the Nasdaq was up 2.4%.   

One last point on the macro-economic front, unemployment remains low.  These three data points combined (unemployment/labor, bond yields and Inflation via CPI) all point towards a prosperous 2024.  Now, I mentioned last week the disparity between equal weighted indexes and normal weighted ones.  The “magnificent seven” as they have been dubbed (Nvidia, Meta/Facebook, Alphabet/Google, Apple, Amazon, Tesla and Microsoft) have been the main performance catalysts for 2023.  I do not think they underperform next year, but I do believe we see a broader participation in 2024 by other names that benefit from those three aforementioned economic indicators remaining low. Soon, you will have money coming out of 5% money markets due to “FOMO” (fear of missing out) and will flow into stocks too.  This should provide another reason for stocks to go higher. 

Company Specific / Micro Economic Summary

Home Depot (HD)

Shares jumped 5.4% as the company reported a top and bottom-line beat.  Earnings of $3.81 per share exceeded calls for $3.76.  Revenue of $37.71 billion for the third quarter also beat Wall Street estimates of $35.66 billion. Ted Decker, chair, president, and CEO said “Similar to the second quarter, we saw continued customer engagement with smaller projects, and experienced pressure in certain big-ticket, discretionary categories. We remain very excited about our strategic initiatives and are committed to investing in the business to deliver the best interconnected shopping experience, capture wallet share with the Pros, and grow our store footprint.

Target (TGT)

Shares were up 19% in trading as the major retailer reported a strong quarter. Earnings came in at $2.10 per share on revenue of $25.40 billion for the fiscal third quarter that ended October 2023. The consensus earnings estimate was $1.48 per share on revenue of $25.30 billion. “While third-quarter sales were consistent with our expectations, earnings per share came in far ahead of our forecast. This profit performance benefited from … efficiency and disciplined inventory management,” Target CEO Brian Cornell said in a statement.

Palo Alto Networks (PANW)

Shares fell 5% on the heels of a good quarter but slightly lower outlook.  Total revenue for the first quarter grew 20% year over year to $1.9 billion, compared with total revenue of $1.6 billion for the prior year.  Fiscal first quarter revenue grew 20% year over year to $1.9 billion. Remaining performance obligation grew 26% year over year to $10.4 billion.  CEO Nikesh Aurora said “an unprecedented level of attacks is fueling strong demand in the cybersecurity market.”

Cisco Systems (CSCO)

Shares tumbled nearly 11% after the digital communications company offered worse-than-expected guidance for the current quarter and full year.  Sadly, it overshadowed an otherwise remarkable quarter for the networking giant.  CEO Chuck Robbins said it was the strongest first quarter results in Cisco’s history in terms of revenue and profitability with $14.7 billion in revenue, up 8% year over year; GAAP EPS $0.89, up 37% year over year, and EPS $1.11, up 29% year over year.

Walmart (WMT)

Shares fell 7% on a pretty flat quarter plus softened guidance for the upcoming holiday season. Earnings of $1.53 per share on revenue of $160.80 billion for the fiscal third quarter ended October 2023. The consensus earnings estimate was $1.53 per share on revenue of $149.82 billion. U.S. comp sales up 4.9% and eCommerce up 24%, led by pickup & delivery.

Gap Inc (GPS)

Shares rose nearly 30% as the retailer reported a good quarter as compared to expectations.  Earnings per share of 59 cents was much stronger than the 20 cent analyst expectations.  Revenue of $3.77 billion was higher than the calls for $3.6 billion Wall Street was looking for.

Parting Thoughts

We welcome an opportunity to discuss the above detail and wish you much success in the rest of your week!

Regards,

E.Palacios

Erick J.  Palacios, MBA

Wealth/Financial Advisor

Plan to Prosper Wealth Management’s clients & employees will from time-to-time hold securities mentioned above. Commentary is not endorsements or recommendations of any securities.