S&P 500 (SPY) Dives Below 3800 As Powell Wants To Put Pressure On Demand

Key Insights

  • S&P 500 finished the trading session below the 3800 level as Powell said that the Fed would work to moderate demand in order to fight inflation. 
  • The pullback was broad as traders rushed out of riskier assets. 
  • However, some consumer defensive stocks managed to gain ground in today’s trading session. 

The Fed Stays Focused On Inflation

S&P 500 declined by 1.7% in a volatile trading session after the Fed increased the interest rate by 75 bps.

Fed’s message was hawkish. The Fed raised the median federal funds rate projection to 4.6% in 2023. During the press conference, Fed Chair Jerome Powell highlighted the importance of pushing inflation back towards the 2% level.

Interestingly, S&P 500 made an attempt to settle above the 3900 level during Powell’s conference. However, stocks quickly lost momentum, and S&P 500 declined to 3790.

Powell said that higher inflation presented a bigger problem than the slowdown of the economy and potential layoffs. Powell said that the labor market was too tight and needed to be more balanced.

The pullback was broad as Fed’s efforts to cool demand will hurt all industries. Leasure and entertainment stocks were hurt the most. Caesars Entertainment, Las Vegas Sands, Carnival Corporation and Wynn Resorts were among the biggest losers.

Leading tech stocks have also found themselves under material pressure. Apple, Amazon, Tesla, and Meta were down by 2-3% in today’s trading session.

Some consumer defensive stocks, like General Mills, Kellogg, Campbell Soup, and Kraft Heinz enjoyed support today. Traders tried to find safe-haven assets in today’s market and focused on companies that produce basic products. It remains to be seen whether these stocks will continue to move higher in the upcoming trading sessions.

A Move Below 3780 Will Push S&P 500 Towards The Support At 3750

S&P 500

S&P 500 settled below the 3800 level and finished the day near 3790. After the market close, it is trying to settle below the support at 3780.

If this attempt is successful, S&P 500 will head towards the next support level, which is located at 3750. A move below this level will push S&P 500 towards the support at 3725. If S&P 500 gets below 3725, it will head towards the next support at 3700.

On the upside, the previous support at 3800 will serve as the first resistance for S&P 500. If S&P 500 manages to settle back above this level, it will head towards the resistance at 3825. A move above 3825 will push S&P 500 towards the resistance at 3850.

For a look at all of today’s economic events, check out our economic calendar.

Best Consumer Staples Stocks To Buy In May

Key Insights

  • S&P 500 is testing yearly lows, so traders are focused on finding safe-haven assets in the current market environment. 
  • Consumer staples stocks have enjoyed strong support this year. 
  • The stocks in this market segment are trading at reasonable valuation levels. 

S&P 500 remains under strong pressure and is testing the 4000 level, so traders continue to search for safe-haven assets that could protect them from the broad market sell-off. Consumer staples stocks have outperformed the market in 2022, and it looks that demand for such stocks would remain stable.

Walmart

Walmart has recently pulled back from its all-time highs levels, which is not surprising given the broader market performance.

Analysts expect that Walmart will report earnings of $6.77 per share in the current fiscal year and earnings of $7.27 per share in the next fiscal year, so the stock is trading at roughly 21 forward P/E.

This is not too cheap, but companies like Walmart have a good position in the inflationary environment. Not surprisingly, investors’ demand for the company’s shares remained strong in 2022, and Walmart stock is up by roughly 5% year-to-date despite general market correction.

Kellogg

Kellogg stock has recently gained strong upside momentum and moved to new highs after the company released its quarterly report.

Kellogg reported revenue of $3.67 billion and adjusted earnings of $1.10 per share, beating analyst estimates on both earnings and revenue. Traders focused on the company’s ability to deal with supply chain problems and inflationary pressures.

Analysts estimates moved higher after the release of the report. Currently, the company is expected to report earnings of $4.11 per share in the current year and $4.3 per share in the next year, so the stock is trading at 18 forward P/E. Such valuation levels look reasonable at a time when traders are ready to buy shares of consumer staples companies that can deal with inflationary pressures.

For a look at all of today’s economic events, check out our economic calendar.

Kellogg’s Q4 Earnings to Decline, Labor Strike to Hurt

The leading worldwide manufacturer and marketer of ready-to-eat cereals, Kellogg’s, is expected to report its fourth-quarter earnings of $0.80 per share, which represents a year-over-year decline of nearly 7% from $0.86 per share seen in the same period a year ago.

The U.S. second-largest biscuit make’s revenue would also decline 2.0% to $3.4 billion from $3.5 billion a year earlier. The Battle Creek Michigan-based company has beaten consensus earnings estimates in most of the quarters in the last two years, at least.

Strikes at Kellogg’s cereal plants in the United States could have adversely affected profit margins in the fourth quarter, which were already squeezed by high costs caused by global supply shortages. Several U.S. factories that make Froot Loops, Corn Flakes, and other cereal brands went on strike in October, limiting their capacity to produce and forcing them to hire temporary workers, according to Reuters.

Kellogg’s stock traded nearly flat at $61.68 on Wednesday. The stock fell over 4% so far this year after surging more than 4% in 2021.

Analyst Comments

“We believe post a COVID driven organic sales growth acceleration in 2020, Kellogg’s organic topline growth will be muted going forward, with our LT organic sales growth forecast of ~1.5%, below large-cap CPG peers in the ~3-5% range. With a muted LT growth potential, we view Kellogg’s valuation of ~17 CY23e P/E on a pension adjusted basis (~15x reported) and ~13x CY23e EV/EBITDA as fair,” noted Pamela Kaufman, equity analyst at Morgan Stanley.

Kellogg Stock Price Forecast

Five analysts who offered stock ratings for Kellogg’s in the last three months forecast the average price in 12 months of $69.40 with a high forecast of $74.00 and a low forecast of $66.00.

The average price target represents a 12.15% change from the last price of $61.88. Of those five analysts, one rated “Buy”, four rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price to $67 with a high of $73 under a bull scenario and $48 under the worst-case scenario. The investment bank gave an “Equal-weight” rating on the food manufacturing company’s stock.

Several analysts have also updated their stock outlook. Deutsche Bank raised the target price to $74 from $71. BofA cut the price objective to $70 from $76. Guggenheim raised the target price to $67 from $66. RBC cut the target price to $66 from $67. Credit Suisse raised the target price to $62 from $61.

Technical analysis suggests it is good to hold for now as 100-day Moving Average and 100-200-day MACD Oscillator gives mixed signals.

Check out FX Empire’s earnings calendar

Wall Street Week Ahead Earnings: KKR, Walt Disney, Coca-Cola, Twitter and PepsiCo in Focus

Investors will focus on December quarter earnings for stocks that are economically sensitive, which should show better profits than technology stocks. Increasing Treasury yields and risk aversion could hit the stock market hard over the coming months. In addition, investors will closely monitor the latest news on the rapidly spread Omicron coronavirus variant to see how it impacts earnings in 2022.

Earnings Calendar For The Week Of February 7

Monday (February 7)

TICKER COMPANY EPS FORECAST
ACM AECOM $0.77
CHGG Chegg $0.13
HAS Hasbro $0.85
LEG Leggett & Platt $0.73
ON ON Semiconductor $0.94
THC Tenet Healthcare $1.49
TSN Tyson Foods $2.01

 

Tuesday (February 8)

IN THE SPOTLIGHT: KKR

The U.S.-based investment firm KKR & Co is expected to report its fourth-quarter earnings of $1.02 per share, which represents year-over-year growth of over 108% from $0.49 per share seen in the same period a year ago.

The company that manages multiple alternative asset classes would post revenue growth of 17% to $784.8 million. It is worth noting that the company has consistently beaten consensus earnings estimates in the last two years, at least.

“Strong near-term growth with fundraising supercycle and GA accretion coming into earnings, but we see this reflected in the price at the current valuation for a business model with greater earnings contribution from the balance sheet (40%). While strong investment performance could drive upward estimate revisions, we have less visibility on more episodic investment income gains,” noted Michael Cyprys, equity analyst at Morgan Stanley.

“Mgmt’s increased focus on expanding the platform with adjacent strategies and scaling successor funds should drive higher fee-related earnings (FRE).”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 8

TICKER COMPANY EPS FORECAST
BP BP $1.18
IT Gartner $2.47
HOG Harley-Davidson $-0.37
LYFT Lyft $-0.46
PFE Pfizer $0.85

 

Wednesday (February 9)

IN THE SPOTLIGHT: WALT DISNEY

Walt Disney, a family entertainment company, is expected to report its fiscal first-quarter earnings of $0.68 per share, which represents year-over-year growth of over 112% from $0.32 per share seen in the same period a year ago.

The family entertainment company would post revenue growth of over 30% to $21.15 billion. The company has beaten earnings estimates in most of the quarters in the last two years, at least.

Disney is building content assets that enable it to take advantage of the significant direct-to-consumer streaming opportunity ahead. Disney’s underlying IP remains best-in-class, supporting long term content monetization opportunities,” noted Benjamin Swinburne, equity analyst at Morgan Stanley.

“During this period of FCF pressure from Parks closures, ESPN’s FCF generation is key to driving down leverage. Historical cycles suggest a potential return to above prior peak US Parks revenues in FY23.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 9

TICKER COMPANY EPS FORECAST
AFG American Financial Group $2.98
CVS CVS Health $1.56
HMC Honda Motor $0.95
RDWR Radware $0.13
SGEN Seagen $-0.74
TM Toyota Motor $3.76
UBER Uber Technologies $-0.33

 

Thursday (February 10)

IN THE SPOTLIGHT: COCA-COLA, TWITTER, PEPSICO

COCA-COLA: The world’s largest soft drink manufacturer is expected to report its fourth-quarter earnings of $0.41 per share, which represents a year-over-year decline of over 12% from $0.47 per share seen in the same quarter a year ago. However, the company’s revenue would grow nearly 4% to $8.94 billion.

TWITTER: The social media giant is expected to report its fourth-quarter earnings of $0.35 per share, which represents year-over-year growth of about 8% from $0.38 per share seen in the same period a year ago.

The company would post revenue growth of over 21% to $1.57 billion. Twitter expects revenues of approximately $1.5 billion to $1.6 billion in the fourth quarter of 2021. GAAP operating income is expected to range from $130 million to $180 million, according to ZACKS Research.

With a focus on engineering and products, Twitter expects to increase headcount and costs by 30% or more in 2021. In 2021, the company expects total revenues to grow faster than expenses.

“Lack of Negative Revisions and Relative Valuation: Valuation continues to be expensive, but we think investors are likely to continue to pay a premium for Twitter (TWTR) given 1) continued turnaround progress and 2) platform scarcity,” noted Brian Nowak, equity analyst at Morgan Stanley.

“Execution Risk Remains Around Driving Advertiser ROI: Advertiser ROI has clearly improved on Twitter, but the company needs to improve ad targeting and measurability to compete with the larger players. To do that it will have to further personalize the content that users see and use its data more effectively, both of which remain key strategic challenges (and priorities) for management.”

PEPSICO: The Harrison, New York-based global food and beverage leader is expected to report its fourth-quarter earnings of $1.52 per share, which represents year-over-year growth of over 3% from $1.47 per share seen in the same period a year ago.

The U.S. multinational food, snack, and beverage corporation would post revenue growth of about 9% to $24.35 billion. It is worth noting that the company has consistently beaten consensus earnings estimates in the last two years, at least.

The company revised its organic revenue growth to 8% from 6% previously. The company estimates core earnings of $6.20 per share for 2021, compared to $5.52 in 2020, according to ZACKS Research.

PepsiCo struggles with supply-chain headwinds that have caused it to increase costs and limit its output. Investors will want to know whether the beverage company is winning this battle when it reports its financial results for the fourth quarter of 2021 on Thursday, February 10.

“For the quarter, we are expecting PepsiCo (PEP) to deliver EPS of $1.47, which implies flat YoY growth and is 4 pennies below consensus EPS of $1.51. Our $1.47 4Q21 estimate implies FY21 EPS of $6.20, which is at the low end of management’s expectation to deliver “at least” $6.20 in EPS and may ultimately prove conservative given PepsiCo’s (PEP) history of outperforming expectations. Since 1Q18, we can see that PEP’s reported EPS has come in above consensus in 14 out of the past 15 quarters, with an average upside surprise of+5%,” noted Vivien Azer, equity analyst at Cowen.

“As we are already almost a month into the new year, all eyes will be on PepsiCo’s (PEP) initial FY22 guidance. As a reminder, on the last earnings call management noted that at the time they expected FY22 performance to be in line with its stated long-term targets, which means MSD (+4-6%) organic revenue growth and HSD core constant currency EPS growth.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 10

TICKER COMPANY EPS FORECAST
AZN AstraZeneca $0.78
EXPE Expedia Group $-0.01
GDDY GoDaddy $0.41
K Kellogg $0.8
MCO Moody’s $2.3
PEP PepsiCo $1.52
TWTR Twitter $0.16
WU Western Union $0.53

 

Friday (February 11)

TICKER COMPANY EPS FORECAST
APO Apollo Global Management $1.08
D Dominion Energy $0.93
FTS Fortis $0.58
MGA Magna International $0.81

 

Starbucks Investors Dismiss Unionization Vote

Starbucks Corp. (SBUX) held close to weekly highs on Friday, despite reports that workers in Buffalo, NY have voted to unionize at least one café. Four other stores are trying to set a vote (three in Buffalo and one in Arizona), with successful efforts likely to stoke similar drives in other locales. Even so, market players may be discounting the Buffalo vote due to the city’s progressive reputation, where a Socialist candidate was beaten in November’s mayoral race.

Union Tempest in a Teapot?

Hourly wage issues are plaguing all sorts of retail and industrial operations as a result of rising inflation triggered by the two-year pandemic, as characterized by well-publicized strikes at Deere and Co. (DE) and Kellogg Co. (K). Whether or not this turns into a nationwide phenomenon remains to be seen, with well-entrenched management and a generally union-adverse American work force that’s repulsed by the Socialist stigma of collective bargaining.

MKM Partners analyst Brett Levy dismissed the unionization effort last week, upgrading Starbucks to ‘Buy’ with a $130 target. As he notes “Despite an operating model facing near-term pressures related to internal decisions, macro-related factors, and the understanding that a straight-line recovery is unlikely, we are choosing to look past these short-term hurdles. We have long been supportive of SBUX’s brand strength/scale; development opportunities; and the balancing of investments in its brand, people, technology and returns to the investment community”.

Wall Street and Technical Outlook

Wall Street consensus stands at a ‘Moderate Buy’ rating based upon 15 ‘Buy’, 7 ‘Hold’, and no ‘Sell’ recommendations. Price targets currently range from a low of $105 to a Street-high $142 while the stock will open Monday’s session about $9 below the average $125 target. This modest placement bodes well for higher prices but that might have to wait until investors can gauge the impact of the Omicron wave, if any, on same store sales around the world.

Starbucks topped out near 100 in July 2019 and sold off to a 20-month low during March 2020’s pandemic decline. The subsequent uptick reached the prior high in November, yielding an immediate breakout that added points at a healthy pace into July 2021’s all-time high at 126.32. The subsequent pullback has carved an inverse head and shoulders pattern across the 50-day moving average, with a breakout setting off buying signals that favor a test of the rally high.

Catch up on the latest price action with our new ETF performance breakdown.

Disclosure: the author held Kellogg in a family account at the time of publication. 

 

Earnings to Watch Next Week: Marriott, Electronic Arts, Alibaba and Walt Disney in Focus

Earnings Calendar For The Week Of May 10

Monday (May 10)

IN THE SPOTLIGHT: MARRIOTT

Marriott International, an American multinational diversified hospitality company, is expected to report its first-quarter earnings of $0.03 per share, which represents a year-over-year decline of over 88% from $0.26 per share seen in the same quarter a year ago.

The U.S. hotel operator’s revenue would slump about 50% to $2.36 billion. However, in the last quarter, the company has delivered an earnings surprise of over 20%.

“Largest hotel brand company globally creates economies of scale, but the spread of COVID-19 will pressure unit growth. With the stock trading near its historical average multiple, we see too wide a risk-reward to justify recommending, with upside/downside driven by how severe and quick business trends return to normal post-COVID-19,” noted Thomas Allen, equity analyst at Morgan Stanley.

Tuesday (May 11)

IN THE SPOTLIGHT: ELECTRONIC ARTS

Electronic Arts, one of the world’s largest video game publishers, is expected to report its fiscal fourth-quarter earnings of $1.04 per share, which represents a year-over-year decline of over 3% from $1.08 per share seen in the same quarter a year ago.

The world’s largest video game publishers would post revenue growth of about 15% to around $1.39 billion. However, in the last four quarters, the company has delivered an earnings surprise of over 500%.

“For the fourth quarter of fiscal 2021, EA expects GAAP revenues of $1.317 billion, cost of revenues to be $302 million, and operating expenses of $837 million. EA anticipates a loss per share of 7 cents for the fourth quarter. Net bookings are expected to be $1.375 billion, which indicates an increase of $75 million over the prior guidance. For fiscal 2021, EA expects revenues of $5.6 billion, cost of revenues to be $1.477 billion, and earnings per share of $2.54,” noted analysts at ZACKS Research.

Wednesday (May 12)

Ticker Company EPS Forecast
WEN Wendy’s $0.15
WIX WIX -$0.68
DT Dynatrace Holdings $0.14
WWW Wolverine World Wide $0.40
LITE Lumentum Holdings Inc $1.42
DOX Amdocs $1.13
JACK Jack In The Box $1.29
GOCO Gocompare.Com $0.00
SONO Sonos Inc -$0.22
PAAS Pan American Silver USA $0.30
MAURY Marui ADR $0.15
TM Toyota Motor $3.67
AEG Aegon $0.17
BRFS BRF $0.02
EBR Centrais Eletricas Brasileiras $0.27
BAYRY Bayer AG PK $0.73
TCEHY Tencent $0.53
DM Dominion Midstream Partners -$0.13
FLO Flowers Foods $0.37

Thursday (May 13)

IN THE SPOTLIGHT: ALIBABA, WALT DISNEY

ALIBABA: China’s Alibaba Group Holding, the largest online and mobile e-commerce company in the world, is expected to report its fiscal fourth-quarter earnings of $1.82 per share, up over 40% from the same quarter a year ago. China’s biggest online commerce company’s revenue to surge more than 70% to $27.7 billion.

“Heightened investments in Taobao Deal and Grocery for user acquisition in less-affluent regions in China, should support long-term growth in core e-commerce business. Merchants’ marketing budgets will continue to shift online given rising reliance on e-commerce and better conversion. Alibaba’s ad resources remain under-monetized,” noted Gary Yu, equity analyst at Morgan Stanley.

“Digitalization trend in China will also sustain AliCloud’s growth potential. Gradual margin expansion will be a long-term profit driver. We see limited near-term catalysts but F22e P/E valuation remains attractive. We also see further downside support from additional disclosure to separate losses from new investments from profitable core e-commerce businesses.”

WALT DISNEY: The world’s leading producers and providers of entertainment and information is expected to report its fiscal second-quarter earnings of $0.27 per share, which represents a year-over-year decline of over 50%. The Chicago, Illinois-based family entertainment company’s revenue would slump over 10% to $ 16.1 billion.

Disney is building content assets that enable it to take advantage of the significant direct-to-consumer streaming opportunity ahead. Disney’s underlying IP remains best-in-class, supporting long-term content monetization opportunities,” noted Benjamin Swinburne, equity analyst at Morgan Stanley.

“During this period of FCF pressure from Parks closures, ESPN’s FCF generation is key to driving down leverage. Historical cycles suggest a potential return to above prior peak US Parks revenues in FY23.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE MAY 13

Ticker Company EPS Forecast
CELH Celsius $0.00
HAE Haemonetics $0.69
BABA Alibaba $11.80
BAM Brookfield Asset Management USA $0.87
TAC TransAlta USA $0.06
UTZ Utz Brands $0.15
VERX Vertex Inc. Cl A $0.05
FTCH Farfetch -$0.28
DIS Walt Disney $0.27
AMAT Applied Materials $1.50
DDS Dillards $1.20
VNET 21Vianet -$0.02
TEF Telefonica $0.16
PBR Petroleo Brasileiro Petrobras $0.12
NICE Nice Systems $1.50
TYOYY Taiyo Yuden ADR $2.09
IX Orix $1.97
SGAMY Sega Sammy ADR -$0.02
SOMLY Secom ADR $0.27
OJIPY Oji ADR $1.57
SBS Companhia De Saneamento Basico $0.15

Friday (May 14)

Ticker Company EPS Forecast
MFG Mizuho Financial $0.06
CIG Companhia Energetica Minas Gerais $0.08
HMC Honda Motor $0.41
SMFG Sumitomo Mitsui Financial $0.12
RDY Drreddys Laboratories $0.52

 

Kellogg Shares Soar on Q1 Earnings Beat and Raised Outlook

Kellogg shares rose over 8% on Thursday after the leading worldwide manufacturer and marketer of ready-to-eat cereals, reported better-than-expected earnings and revenue in the first quarter and lifted the fiscal year 2021 guidance.

The U.S. second-largest biscuit maker reported net sales rose over 5% to $3.58 billion in the quarter ended April 3, up from $3.41 billion seen in the same period a year ago. That was higher than the Wall Street consensus estimates of $3.38 billion.

The Battle Creek, Michigan-based company said its diluted earnings per share rose over 12% to $1.11, beating analysts’ expectations of $0.95 per share.

Kellogg forecasts sales growth to finish 2021 nearly flat year-on-year, an improvement from the previous expectations of about a 1% decline. Adjusted earnings per share is expected to increase by nearly 1% to 2%, up from the previous forecast of a 1% rise.

Following the upbeat results, Kellogg shares rose as high as 8% to $68.14 on Thursday. The stock rose over 8% so far this year.

Analyst Comments

“We expect a positive stock reaction to Kellogg’s large Q1 topline/profit/EPS beat, despite the cycling of solid topline growth in 1Q20, along with slightly raised FY21 guidance. While the magnitude of the FY21 raise was small (organic sales +100 bps, OP/EPS growth +50 bps), it was unexpected as there were concerns about lower or lower-quality FY guidance with commodity pressure,” noted Dara Mohsenian, equity analyst at Morgan Stanley.

Kellogg Stock Price Forecast

Five analysts who offered stock ratings for Kellogg in the last three months forecast the average price in 12 months of $66.00 with a high forecast of $72.00 and a low forecast of $60.00.

The average price target represents a -2.73% decrease from the last price of $67.85. Of those five analysts, two rated “Buy”, three rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price to $60 with a high of $71 under a bull scenario and $43 under the worst-case scenario. The firm gave an “Equal-weight” rating on the food manufacturing company’s stock.

Several other analysts have also updated their stock outlook. Kellogg had its price target cut by Deutsche Bank to $70 from $75. They currently have a buy rating on the stock. Citigroup reduced their price objective to $72 from $75. Jefferies Financial Group dropped their target price to $65 from $69 and set a hold rating. Piper Sandler lowered Kellogg from an overweight rating to a neutral rating and dropped their target price to $66 from $76.

Upside and Downside Risks

Risks to Upside: Higher US snacks growth on reinvestment/innovation, stabilized US cereal business with innovation and higher ad spend, higher-margin expansion on greater cost savings and moderate commodities – highlighted by Morgan Stanley.

Risks to Downside: Pricing pressure in the US (65% of sales) with retailer friction, COVID-related supply chain disruptions in 2020, lower operating profit growth on higher reinvestment needs and cost pressure.

Check out FX Empire’s earnings calendar