09/17/2020

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The Week Ahead on Wall Street



Economic Data

Today, the NAHB Housing Market Index for August is released, along with the August Empire State Manufacturing Index. The Empire State Manufacturing Index is based on responses to a survey about business conditions from roughly 200 manufacturing executives in New York state. Last month, 41% of respondents said that conditions in July were better than in June. This was an improvement from the June survey, when only 36% said conditions had improved since May. Investors and economists will be eager to see if this upward trend continues.

Tomorrow, July housing starts and building permits will be released. Housing starts are the number of new residential construction projects beginning during a certain period. Building permits track construction projects at a slightly earlier stage, but both are important economic indicators. In June, housing starts rose 17.3% to a seasonally adjusted annual rate of 1.19 million units. Demand for housing has been particularly high in lower-density areas as people move to places where it is easier to practice social distancing than in urban centers. Mortgage rates are also at record lows, which has fueled demand for housing.

On Wednesday, the Federal Open Market Committee (FOMC) meeting minutes are released. Investors will be watching for information about the group’s perspective on the economy. At July’s meeting, the committee kept the federal funds rate close to zero, where it has hovered since March. This was seen as a sign that the Fed is committed to propping up the economy and is expecting a long road to recovery ahead.

On Thursday, the Philadelphia Fed Index for August and July leading indicators are released, along with weekly initial jobless claims. Last week, first-time unemployment insurance claims were below one million for the first time since mid-March—an encouraging sign that the labor market is gradually recovering.

To round out the week, existing home sales for July are published on Friday. This metric is important, but is somewhat of a lagging indicator, because most existing home sales transactions are reported after the sale closes. In June, existing home sales climbed by 20.7% after three months of declining sales. Every region—the West, Midwest, South, and Northeast—saw a month-over-month increase, with sales in the West growing the most.

Earnings

JD.com (JD) hands in its report card today. The Chinese ecommerce company sells everything from smartphones to clothing to food and also has a growing healthcare division. During the year’s first quarter, JD.com saw its annual active users rise by 25% and its mobile daily active users grow by 46%. Much of this was due to people staying home when the COVID-19 pandemic was at its height in China. However, analysts expect JD.com will see its customer base expand for other reasons too. According to McKinsey, China’s middle class could grow to 550 million by 2022, which would provide more business opportunities for the company.

Walmart (WMT) releases its earnings tomorrow. The retail giant has been experimenting with ways to gain ground in the world of ecommerce. Currently, Amazon (AMZN) controls about 38% of all online retail sales in the US. Walmart is in second place, but only accounts for 5% of the US ecommerce market. Walmart is making plans to roll out a subscription service called Walmart Plus, which it hopes will compete with Amazon Prime.

TJX Companies (TJX), which owns T.J. Maxx, Marshalls, HomeGoods, and other discount retailers, will report earnings on Wednesday. Instead of pivoting to ecommerce during the pandemic like many retailers, TJX Companies focused on reopening stores. This is partially because it offers bargain prices so margins on online sales are slim. It is also hoping that customers will be hungry for traditional shopping experiences after lockdowns.

Gap Inc (GPS) will check in on Thursday. Like almost all retailers, the company has suffered due to the COVID-19 pandemic. Gap has announced that it will close 230 of its brick and mortar stores. However, it is working to leverage its ecommerce operations and adapt to changing consumer needs with its other lines outside of the classic Gap brand. For example, Athleta is filling a demand for athleisure wear and Old Navy is giving consumers budget clothing options. Some investors also see Gap’s recent partnership with Kanye West’s Yeezy brand as a way for the company to grow its customer base.

Lastly, on Friday, Deere & Co (DE) will report. Deere’s stock rose 12.2% in July and some see positive catalysts like government support helping farm income increase in the coming months. With that said, some analysts are less optimistic about what lies ahead for US farmers because of growing competition from South America and the Black Sea region. All told, investors will be looking for guidance from the company for the rest of the year.


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