U.S. equity markets traded in a wide range for most of the last five days, ultimately capping the week solidly in positive territory.
Perhaps the biggest stories for equities were bank earnings results from some of the nation’s biggest players, and a huge warning from Wal-Mart (NYSE:WMT) that resulted in a huge selloff for the stock.
Here’s what you might have missed this week.
Investors Punish Wal-Mart
Wal-Mart held its annual investor day on Wednesday, revealing facts about the company investors simply didn’t like.
The world’s biggest retailer said the dollar’s continued strength would force the company’s net sales-growth figures for the 2016 fiscal year to be flat. It also warned currency headwinds will slash revenue for 2015 by $15 billion.
But that’s not all. In February Wal-Mart said that it would spend more than $1 billion to increase paychecks for half a million of its employees in the U.S. over the course of the year. The wage debate has long been raging about whether hourly employees should see a bump in their pay – the fight has long been one fought on Capitol Hill as well.
It’s those wages, though, that once cheered by investors, were shunned. The company said because of the increase, it expects to see its earnings per share decline between 6% and 12% in fiscal 2017.
On the news, the company’s shares dropped more than 10% for the session on Wednesday, shaving more than 44 points off the Dow. Wal-Mart is the biggest year-to-date loser for the index.
James Abate, CIO of Centre Funds, said even with the drop in price, Wal-Mart still isn’t a buy for him.
“When you look further, one of the things they talk about is not just wage increases, but also the necessity to reinvest bank into the business by cutting prices, putting money back into their store. What they don’t want to do is become the next Sears, or K-Mart, or the old WT Grant, where they become irrelevant,” he said.
Still, he said the retailer isn’t likely to go anywhere anytime soon…people still love the in-store experience as they continue to split their time between online shopping and bricks and mortar.
Treasury to Congress: Debt Deadline Looms
Remember when Planned Parenthood was the reason for Congress to be divided over stop-gap government funding?
Well, it’s that time again. And Treasury Secretary Jack Lew hit the airwaves in an exclusive interview with FOX Business’ Liz Claman to warn Congress (and investors) that the debt limit is closer than they expect.
On Thursday, Lew sent a letter to leaders on Capitol Hill alerting them that the deadline to raise the debt ceiling had moved forward by two days to November 3. He said more information from the Treasury Department indicated the department’s projected net resources have declined by between $4 billion and $6 billion.
Lew said that missing the opportunity to act before the deadline would force the U.S. into a worst-case scenario in which it could miss payments on its debt…which would have huge implications for the U.S. economy.
“What we don’t need right now is to take an economy that’s now doing well, looked around the world as a source of strength, and do something that weakens it. That’s what would happen if Congress fails to act. Congress needs to act,” the Treasury Secretary said.
Recall previous debt-ceiling debacles that have resulted in huge, arbitrary cuts to the U.S. budget, and New Year’s Eve down-to-the-minute fights in Congress over what to do: Raise or don’t raise.
For now, the problems are centered in D.C. But as the deadline looms larger, Wall Street is likely to weigh in on how a default will affect the seemingly fragile economy that might or might not see higher rates before next summer.
Big Banks Fail to Impress
Third-quarter earnings season didn’t bring fireworks to Wall Street. At least not this week.
The nation’s biggest banks opened their books to much fanfare, and some disappointment. Here’s the score card:
JPMorgan Chase (NYSE:JPM) reported a miss on both lines. The biggest U.S. bank by assets said it earned an adjusted profit of $1.32 a share on revenue of $23.54 billion. The results missed expectations for $1.37 in profits per share on revenue of $23.69 billion.
Goldman Sachs (NYSE:GS), the nation’s biggest investment bank, reported a quarterly profit of $2.90 a share on revenue of $6.86 billion. The results missed expectations for profits of $2.91 a share on revenue of $7.12 billion. The firm said its trading revenue saw a steep decline during the reporting period thanks to drop in fixed income, currency, and commodities business – Goldman said that was caused in part by “challenging market-making conditions.”
Citigroup (NYSE:C), meanwhile, revealed a mixed quarter. The nation’s third-largest bank by assets revealed adjusted profits per share of $1.31, beating estimates for $1.28. Revenue came in at $18.50 billion, slightly missing expectations for $18.54 billion. The firm said the rise in profit came as it also saw a decline in costs.
Wells Fargo (NYSE:WFC) the fourth-largest bank by assets in the U.S. beat expectations on both lines. The bank said revenue from its mortgage banking unit fell 2.7% during the reporting period as applications for new home loans have seen a 25% decrease since the beginning of the year, according to the Mortgage Bankers Association.
Bank of America also beat expectations. However, the second-biggest bank by assets revealed a lower profit from a year ago after a multi-billion dollar mortgage settlement with the government.
Next Week: All About Housing…and China
The Federal Reserve is still closely-watching economic data before it makes a final decision to hike rates…and therefore, Wall Street is also closely monitoring any new reports.
The calendar is light next week with just key housing data in the U.S.
- Monday: National Association of Homebuilders’ homebuilder sentiment gauge
- Tuesday: Housing starts
- Thursday: Existing home sales
But what investors will likely also be focusing on is a slew of data points from China, including GDP that will give an updated picture on how well the world’s second-biggest economy is faring. Concerns over the summer came after the nation twice devalued its currency, and released weak manufacturing data. The results sent global markets into a tailspin. Wall Street is hoping a better-performing China will equal higher rates sooner for the Fed.