2023.05.22 4,300 points to be the resistance

The Mortgage Bankers Association (MBA) of the United States reported that for the week ended May 12, the 30-year fixed mortgage loan interest rate increased from 6.48 bps to 6.57 bps. As a result, mortgage loan applications decreased by 5.7% for the same week. New application and refinancing indices also decreased 5.7% and 7.7% respectively. The April US construction permits fell slightly by 1% to 1.416 million monthly, less than the 1.43 million expected, and less than the previous 1.43 million units. In April, construction starts of new homes rose by 2.2% monthly to 1.401 million units, slightly higher than the expected 1.4 million, and the previous adjusted 1.371 million. According to Manheim data, wholesale used-vehicle prices in the US decreased by 3% in April, and the Manheim Used Vehicle Value Index (MUVVI) dropped to 230.8, down 4.4% YoY. This is the first time this year that prices have decreased, reversing the previous trend.

According to the US Department of Commerce, retail sales in April increased by 0.4% from the previous month and 1.6% from the previous year. Core retail sales, which exclude automobiles, gasoline, building materials, and food services, also increased by 0.7% from the previous month. The retail sales were lower than market expectations, but still improved compared to March due to a strong job market. In April, the Consumer Price Index (CPI) in the US increased by 4.9% from the previous year, which is lower than expectations and has been declining for ten consecutive months, reaching its lowest level since September 2021. Core inflation increased by 5.5% from the previous year, which is in line with market expectations. The market expects that the slowdown in US inflation may lead to the Federal Reserve temporarily stopping interest rate hikes and maintaining a restrictive monetary policy. We expect S&P 500 to fluctuate between 4,000 to 4,300 points.

In terms of industry, US retail companies have released their Q1 earnings reports. With the moderate recovery of retail sales, investors can pay attention to related stocks.

Walmart (WMT.US) reported strong Q1 earnings, with revenue up 7.6% YoY to US$152.3 bn, beating market expectations of US$148.72 bn. Adjusted EPS rose over 13% YoY to US$1.47, higher than the expected US$1.31. The company’s business in the US rose 7.4% YoY, while e-commerce sales rose 27% YoY, driven by growth in delivery and pickup services. Walmart’s mgt stated that spending is slowing down due to the end of nutritional assistance programs and emergency funds related to the pandemic, as well as a decrease in tax refunds. However, the company raised its Q2 and full-year earnings guidance, with adjusted EPS expected to be US$1.68 for Q2 and US$6.10-US$6.20 for the full year. It is recommended to buy at US$145.4, target at US$169.4, and stop loss of US$139.4.

Target (TGT.US) reported its Q1 earnings, with revenue increasing by 0.5% YoY to US$24.95 bn, while net income fell by 5.8% YoY to US$950 mn, and diluted EPS was US$2.05, beating expectations. The company’s better-than-expected earnings were mainly due to a decrease in inventory, which fell by 16% compared to the same period last year.

The company is on track to invest US$4-5 bn in 2023 in strategic growth initiatives, and the company has opened 6 of ~20 new stores planned in 2023. Besides, the company began work on more than half of the ~175 stores undergoing full remodeling and other enhancements in 2023. Due to the cooling of consumer trends in Q1, mgt expects same-store sales to decline by 1%-4% in Q2, with adjusted EPS expected to reach US$1.30-US$1.70. The company’s full-year financial forecast remains unchanged, with same-store sales growth expected to be 0.7%, and EPS is expected to be between US$7.75-US$8.75. It is recommended to buy at US$147.7, target at US$172.1, and stop loss of US$141.6