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Catalyst watch for the week of November 19. Seeking Alpha Senior Executive Editor Kim Khan on the quiet economic calendar. (00:21) Julie Morgan shares the latest analysis on two companies set to report earnings, Baidu, Inc. (BIDU) and Nvidia Corporation (NVDA). (02:20) They also discuss the tale of two retail earnings reports, Walmart (WMT) and Target, (TGT) including WMT’s hint at signs of deflation.
Julie Morgan: So, Kim, next week, we have a holiday shortened week. So not too much going on really?
Kim Khan: Yeah, it’s going to be a fairly quiet week. Also, I guess I’m tempting the Gods when I say that. But usually it is, we’ve got the bond market closed both on Thanksgiving and Thanksgiving Friday. And then the stock market is a half day on the Friday, of course, closed Thanksgiving. Very quiet on the economic calendar.
We’ve got the FOMC minutes, durable goods orders, and some existing home sales data, but not too much. That is going to set traders a light. A lot of people tend to try and get a jump on the long weekend anyway. So it might see low volume. So you might see some swings. But overall, it shouldn’t be too much and it’s been very busy. So a good time to consolidate.
JM: We’ll talk more about that but first let’s talk about a couple of companies reporting earnings next week.
Today we’re focusing on two companies, Nvidia and Baidu. They both report earnings next Tuesday, November 21st.
Let’s start with Nvidia. Robert Castellano wrote an article entitled Nvidia: Assuring Processor Dominance by Technology and Strategic Investments. I’m bringing this article to your attention because it’s an editor’s pick.
In the article look for why he rates Nvidia a buy and why he believes Nvidia will likely maintain a leading position in the market for the foreseeable future.
Next we have Baidu. The latest analysis on Baidu is by Dilantha De Silva. The article is entitled, Baidu: Upgrading to buy. In the article he presents three main reasons on why he’s bullish on the long-term prospects for Baidu. The first reason has to do with Baidu’s search engine, the second reason relates to AI and the third has to do with investors.
I’ll link both articles in the show notes section of this podcast.
JM: All right. So we do have the holiday shortened week. But Friday, there is trading and it’s also Black Friday as well. So we’re thinking about holiday shopping.
KK: Yeah, it’s the kick-off of the holiday shopping season. Black Friday is still very big, although it’s been diluted a bit with other major sales days like Amazon Prime Day and things, but it’s still a good gauge of how the retail sector is doing and how they’re going to finish up the year. And we’ve gotten some mixed signals in the retail sector this week.
As we’re recording, we’ve seen some really good numbers from Target and some really cautious outlook from Walmart. So going in different directions and it might be good to get some more clarity on that by seeing how they do over the holiday weekend?
JM: I thought it was interesting because I looked at the charts for both companies, for Walmart and Target, what’s happened in the past five days. You look at Walmart, it’s pretty steady and then it drops off a cliff. And then you look at Target and it’s pretty steady and then it rises all of a sudden. So the guidance from the two companies, they had to be very different.
KK: Yeah, they were. I mean, Target was very upbeat. And Walmart was saying that they saw a pretty good Halloween traffic, but there was a couple of weeks in October where they were concerned that shopping wasn’t where it should be and made them concerned as they said about the overall health of the U.S. consumer.
As far as the stocks go, I mean, Target had been pretty beaten down. So, any kind of good news and it was a good excuse for the Bulls to jump in and it was a good week to do it when everybody was kind of off to the races with the Fed has done trade. But Walmart, not matching those expectations. Walmart had risen on the Target news. So now it gets punished for not matching that optimistic outlook.
One of the most interesting things on Walmart’s results was that the CEO said that there may be signs of a chance of deflation coming up. And we’ve been talking about deflation for so much. And, of course, as inflation comes down, we have the talk of the rate of disinflation, but nobody’s really been talking too much about deflation.
There have been a couple of people, Cathie Wood of ARK Invest, most notably who has said that the Fed has gone way too far and the U.S. will go through a period of economic deflation, which will be troubling. But not too many have said that are on the coal face as it were with Walmart seeing the numbers and saying, “Look, we’re going to see prices not just stop rising so fast, but come down.”
JM: But how will investors look at this going forward? Will they be cautious?
KK: I think they will be definitely cautious. There will be some knee jerk trades, of course, as you always get especially long weekends and pent-up demands as trades are executed on Monday, people are going to react quickly to the Black Friday, Cyber Monday numbers. But looking longer-term, I mean, there’s an even bigger issue than just what goes on in the holiday shopping season. And you see this in a bit with the confusion in Wall Street Research about where these stocks are going to head and how much the economy can keep humming along with the consumer spending, whether there’s going to be a soft landing.
The major question I have is, did the pandemic actually totally change the nature of the U.S. consumer and we’re just not seeing that yet. We’re not grasping that yet. Did people change the way that they shop? Are they shopping much more online and then they — are they, is it easier for them to make decisions? Are they substituting things like we see concert tickets influencing the CPIs of nations when Beyoncé goes on tour, or Taylor Swift. People are trading that off while durable goods spending is falling.
So UBS was saying, concert tickets are more fun than dishwashers or washing machine. So the people are making that trade off. And as this progresses, as this kind of newfound territory progresses, this post unprecedented tightening cycle, this attempt at a soft landing and the Fed starts cutting rates. Will we see people suddenly see their savings rates get really low and just snap up their wallets and then we kind of fall off a cliff, or is it going to be a boom when you get a deflation as Walmart says and suddenly everybody goes, well, things are cheaper again and I can buy, buy, buy.
JM: We have to really wait and see and figure out what the consumer is really doing right now.
KK: Yeah, I mean, it is uncharted territory and we kind of lose sight of that because everybody wants the immediate trade and the immediate strategy and sometimes it’s difficult, especially with the Fed, who’s pushing that narrative of be data dependent. So you’re kind of forced to trade on every data point or you feel like, you get this FOMO and really lose the ability to step back and say, I’m not really sure what the global economy is going to look like even three months from now, let alone six or 12 months.
JM: Kim, anything else you want to add?
KK: No, just wish everybody a happy Thanksgiving.
JM: Until next time.
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