The Week Ahead on Wall Street

Economic Data Releases

Today, existing home sales for October are released by the National Association of Retailers. This metric tracks the sales of previously owned homes in a given month. In September, existing home sales gained 7% driven by a dip in interest rates in August. Interest rates have been rising since then, with applications for refinances declining. October’s report should give investors more clarity as to where the real estate market is heading.

Tomorrow, Markit’s Manufacturing and Services PMIs for November are released. The Purchasing Managers Indexes take a pulse of manufacturing and services activity in a given month. This data is compiled by the Institute for Supply Management (ISM) and is based on a monthly survey which is sent to executives at over 400 companies. The manufacturing PMI slumped to a 16-year low in October with factories still experiencing delays getting materials. Given the current supply-chain difficulties, the reading may not be any better in November.

On Wednesday, there is a bevy of economic data being released ahead of Thanksgiving. Investors will be paying close attention to initial and existing unemployment claims for the week earlier. The job market has been steadily improving as the number of COVID-19 cases starts to slow and people return to work. Last week the number of people seeking unemployment hit a new pandemic low of 290,000.

Also Wednesday, the Consumer Sentiment Index for November is released by the University of Michigan. This data point takes a pulse of how consumers are feeling about the economy and their finances. Consumer spending has held up in the face of inflation, but it's not clear how long consumers will be willing to pay elevated prices. Consumer confidence rebounded in October after three months of declines. Economists pointed to fewer COVID-19 cases for the improvement in sentiment.

On Thursday and Friday there is no economic data being released because of Thanksgiving.

Earnings Reports

Today, Zoom Communications (ZM) reports quarterly earnings. The pandemic darling has seen usage slow down as more people return to work in-person. Zoom recently announced it would start showing ads to customers on the free version of its service. This is a big change for the video conferencing company and investors will want to learn more about the initiative.

Tomorrow, Nordstrom (JWN) reports quarterly earnings. Aiming to reach new customers, the department store operator just inked a deal with the sports apparel company Fanatics. Through the partnership, Nordstrom will sell licensed sports gear for the first time.

Also Tuesday, American Eagle (AEO) reports quarterly earnings. The speciality retailer is expected to post strong results, driven by robust demand online and in stores. Investors will want to hear more about American Eagle’s outlook heading into a holiday season which could be impacted by inflation and pent-up demand.

JM Smucker (SJM) also weighs in with quarterly earnings Tuesday. The food company is spending $1.1 billion to build a new plant in Birmingham, Alabama. The plant will employ about 750 people, producing JM Smucker’s Uncrustables products, starting in 2025.

Wednesday, be on the lookout for earnings from Deere (DE). Last week the farm equipment company reached a deal with 10,000 UAW workers who have been striking for several weeks. Workers get a one-time bonus and a 10% pay hike over the course of six years.

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Roku Gets Into the Content Creation Game

Rokus Wants to Make Content for Its 155 Million Customers

Roku (ROKU) wants to be more than just a vehicle for showcasing other companies’ content. The streaming device maker is gearing up to create over 50 original shows during the next two years. The idea is to morph Roku into a leading destination for consumers to access free content.

As it stands, about half of the 155 million people in the US with a Roku device visit the Roku channel. On this channel, Roku serves up free content with ads through more than 200 licensing deals with outside content providers. Roku wants to capitalize on its access to viewers by making new shows in-house.

Roku Takes on Big Competitors

Roku is not disclosing exactly how much it is spending on its content initiative. The company said that it expects costs to be in-line with production costs for basic cable shows. On average, those budgets are a lot lower than what companies like Netflix (NFLX) and WarnerMedia (T) pour into their hit shows.

The streaming device maker has started receiving show proposals from production companies. Roku is mainly looking for shows to reach audiences ages 18 to 49, and is looking for both scripted and unscripted programs. The latter could include reality shows, competitions, and lifestyle programming.

The Importance of Ad Sales

Roku started out making and selling devices which allow viewers to stream a wide variety of content from one platform. However, the company’s ad sales business is taking off. Roku raked in about $1.3 billion from ad sales in 2020, including revenue from its distribution agreements. Companies pay Roku for placement on the platform and on the Roku channel.

During the height of the pandemic, the amount of time people spent streaming content on Roku climbed 65%. That rapid growth has slowed somewhat, but Roku still has a captive audience. The company is hoping that their audience has an appetite for free content.

Semiconductor Stocks Surge Amidst Strong Demand

Qualcomm, Nvidia, AMD Outperform the S&P 500

Qualcomm (QCOM), Nvidia (NVDA), and Advanced Micro Devices (AMD) are among the chip stocks which have surged this month as demand continues to outstrip supply. That imbalance is driving earnings and revenue growth for semiconductor companies. Investors, in turn, are driving share prices of these companies higher.

Nvidia’s third quarter earnings report lifted the sector last week when it bested Wall Street’s revenue and earnings forecast. The graphic chip maker’s growth is being driven by video games and digital services.

Earnings Growth to More Than Double

Analysts forecast that earnings for chip and chip equipment companies in the S&P 500 increased 56% year-over-year in the third quarter. That is well above the 40% growth expected for the S&P 500 as a whole.

Demand for chipmakers’ products is so strong that they have not been able to keep up. For months, a shortage of semiconductors has hurt manufacturers’ ability to churn out cars, electronics, and home appliances.

Looking Ahead

Supply constraints in the semiconductor industry were originally expected to ease in the middle of 2022, but now chip companies are saying they could persist throughout next year potentially even spilling into 2023.

Meanwhile, analysts are betting that recovery from the pandemic will pick up speed as the number of COVID-19 cases fall and supply-chain delays ease. As a result, demand for chips is likely to remain strong. Investors will be watching carefully to see if chip stocks will continue to benefit from the supply-demand imbalance.