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Tuesday May 23, 2017



Wal-Mart Surges on Digital Sales

Wal-Mart Stores, Inc. (WMT) announced its quarterly earnings on Thursday, May 18. The retail giant's shares reached a 52-week high after it reported a surge in online purchases and earnings that surpassed analysts' estimates.

Wal-Mart reported revenue of $117.54 billion in the first quarter, falling slightly below the $117.74 billion in revenue expected by analysts. Last year, revenue in the first quarter was $115.90 billion.

"We delivered a solid first quarter and we're encouraged by the start to the year," said Wal-Mart CEO Doug McMillion. "We're moving faster to combine our digital and physical assets to make shopping simple and easy for customers."

The company's net income was $3.04 billion in the first quarter, down from $3.08 billion one year ago. On an adjusted earnings per share basis, Wal-Mart reported profit of $1.00 per share, beating analysts' earnings predictions of $0.96 per share.

Perhaps the most noteworthy data from Wal-Mart's earnings release was the company's colossal 63% growth in online sales. The boost was due in part to the company's decision to offer free two-day shipping on qualifying purchases over $35 without membership fees. In the past year, Wal-Mart acquired online retailer Jet.com and specialty retailers Moosejaw, ModCloth and ShoeBuy. Unlike many other retailers who have struggled in recent quarters to draw customers into the stores' physical locations, Wal-Mart saw an increase of foot-traffic with comparable in-store sales rising 3% year-over-year.

Wal-Mart Stores, Inc. (WMT) shares ended the week at $78.80 on 5/19, up 4% for the week.

Target Earnings Increase, Revenue Falls

Target Corporation (TGT) announced its first quarter earnings on Wednesday, May 17. The retailer reported a drop in earnings that wasn't as steep as Wall Street expected, causing shares to jump 7.4% after earnings were released.

Target reported quarterly revenue of $16.02 billion. This was a decrease from last year's first quarter revenue of $16.20 billion, but better than the $15.62 billion in revenue expected by analysts.

"After starting the quarter with very soft trends, we saw improvement later in the quarter, particularly in March," said Target CEO Brian Cornell. "We are in the early stage of a multi-year effort to position Target for profitable, consistent long-term growth, and while we are confident in our plans, we are facing multiple headwinds in the current landscape. As a result, we will continue to plan our business prudently while preparing our team to chase business when we have an opportunity."

Target announced adjusted earnings of $1.21 per share, compared to $1.05 per share a year ago. This was above the $0.91 per share that analysts were expecting.

Brick-and-mortar stores have continued to struggle to compete with online giants like Amazon, and Target is no exception. In the first quarter, Target's same store sales fell 1.3%. In an effort to persevere through the harsh retail environment, Target has been devoting time and resources to growing its online presence, which contributed to a 22% increase in comparable digital channel sales in the first quarter. In addition, the retailer will be remodeling more than one-third of its stores over the course of three years and rolling out 12 original brands in the next two years.

Target Corporation (TGT) shares ended the week at $56.00 on 5/19, up 1% for the week.

Home Depot Reports Strong Earnings

Home Depot, Inc. (HD) reported quarterly earnings on Tuesday, May 16. The world's largest home improvement retailer boasted better-than-expected earnings thanks to increased customer traffic coupled with a healthy housing market.

Home Depot announced revenue for the first quarter was $23.9 billion—topping the $23.7 billion in revenue that analysts predicted. Last year, revenue in the first quarter was $22.8 billion.

"We were pleased with our results as they reflected broad-based growth across our interconnected platform and all geographies," said Home Depot CEO Craig Menear. "This was made possible by our hard working store associates, merchants and supply chain teams and our continued dedication to customer service."

Home Depot reported net income of $2.01 billion, up from last year's first quarter earnings of $1.80 billion. Earnings per share for the first quarter were $1.67, up from $1.44 per share a year ago.

The home improvement retailer benefited from an uptick in house hunters and remodelers in the first quarter. The average customer's receipt rose 3.9% compared to the same quarter last year. The company also indicated that shoppers are purchasing more "big ticket" items, as sales of goods priced above $900 increased 15.8%.

Home Depot, Inc. (HD) shares ended the week at $156.29 on 5/19, down 0.6% for the week.

The Dow started the week of 5/15 at 20,924 and closed at 20,805 on 5/19. The S&P 500 started the week at 2,394 and closed at 2,382. The NASDAQ started the week at 6,128 and closed at 6,084.

Yields Edge Higher

After a bond rally sent yields tumbling earlier in the week, Treasury yields edged upward on Thursday and Friday on upbeat economic data. Political controversies surrounding the White House sparked the bond rally earlier in the week as investors turned away from risk investments and toward safe-haven assets like government bonds.

On Tuesday, the flight to bonds was the result of reports that President Trump allegedly asked former FBI Director James Comey to back off of an investigation looking into links between Russia and former National Security Adviser Michael Flynn. As analysts began to question whether President Trump would be able to move forward with his economic stimulus plans, demand for government bonds rose, causing yields to fall and bond prices to rise.

"Markets are repricing as the odds of a tax reform bill are falling," said David Kotok, chief investment officer at Cumberland Advisors. "They are surmising that the Trump economic agenda is now injured. They see Congress as likely to be bogged down in investigations and hearings. They see businesspersons and investors going to the sidelines because they do not know what the new rules will be."

On Thursday, however, the appetite for risk investments returned following upbeat unemployment data released by the Labor Department. The Department reported that new applications for unemployment benefits dropped 4,000 to 232,000 for the period that ended on May 13. In addition, the number of continuing jobless claims in April decreased 22,000 to 1.90 million—the lowest number of claims since November 1988.

Yields continued their rise on Friday as stocks continued to regain their footing following their sharp drop earlier in the week. The 10-year Treasury note was up 2.6 basis points to 2.255%, while the 30-year note gained 1.5 basis points to 2.916%.

"Yields are up because stocks are rising. They are taking their cue from that," said Lou Brien, market strategist at DRW Trading. While the sentiment among analysts on Friday was that the markets were starting to stabilize thanks to a lull in the controversial political headlines, Brien noted "markets are trading very nervously."

The 10-year Treasury note yield finished the week of 5/15 at 2.24%, while the 30-year Treasury note yield was 2.91%.

Mortgage Rates Decrease

Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, May 18. The report showed mortgage rates fell slightly during the course of the week.

The 30-year fixed rate mortgage averaged 4.02% this week. This represents a decrease from last week when it averaged 4.05%. Last year at this time, the 30-year fixed rate mortgage averaged 3.58%.

This week, the 15-year fixed rate mortgage averaged 3.27%. This was lower than last week's average of 3.29%. The 15-year fixed rate mortgage averaged 2.81% one year ago.

"The 30-year mortgage rate fell three basis points this week to 4.02%," said Sean Becketti, Chief Economist at Freddie Mac. "However, this week's survey closed prior to Wednesday's flight to quality. The delayed impact of the associated decline in Treasury yields may push mortgage rates lower in next week's survey."

Based on published national averages, the money market account finished the week of 5/15 at 0.72%. The 1-year CD finished at 1.37%.

Published May 19, 2017
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