SPX500 Indecisive as Markets Digest Strong Retail Sales & Poor Earnings from Target

SPX500 Analysis

The broad US index runs its second straight profitable month and comes from one of its best weeks of the year, as the soft CPI Inflation report, moderated market expectations around the Fed's tightening cycle and the terminal rate. Factory-gate prices also eased, as the Producer Price Index came in at +8.0% y/y in October, from +8.5% previously.

Data released earlier today, showed that Retail Sales jumped 1.3% in October, from the flat prior reading (0.0%). However, this is not necessarily good for the stock market, since strong economic data allow the Fed to stay on its aggressive tightening path.

Quarterly results from US retail giants were in the spotlight this week, amidst of unfavorable high inflation/rising interest rates environment, but most of them offering encouraging reports.
Walmart (WMT.us) saw its operating income drop on both quarterly and yearly basis but offered improved forward guidance. It now expects a decline of 6.5-7.5% for the full fiscal 2022, from 9-11% previously. ^[1]

Rival Target (TGT.us) however disappointed markets earlier today, which caused its stock to plunge. Target made progress in reducing its excess inventories and the Net Earnings of $712 million marked an improvement from the previous quarter, but were less than half of the year-ago period. ^[2] What stood out the most though, was the fact that the firm slashed its profit margin guidance for the remainder of the year and the important holiday season, now projecting fourth quarter operating margin around 3%.

Geopolitical fears meanwhile eased, as NATO Secretary said that the preliminary analysis shows that yesterday's explosion in Poland was "likely caused by a Ukrainian air defence missile" and not from a Russian attack, according to the preliminary investigation. ^[3]

SPX500 shows indecision as investors assess the aforementioned data points and news, but bulls remain in the driver's seat, having covered around half of the mid-September/mid-October losses. This allows them to push for the descending trendline from January's record highs (at around 4,130), but it is early to talk about a larger recovery towards 4,326.

On the other hand, SPX500 fails to clear the 4K handle and we cansee pressure back towards the EMA200 (at 4,830), but a catalyst would be required for daily closes below it. This would shift immediate bias to the downside and would render the index vulnerable to fresh monthly lows (3,696).