April CPI, Walmart, Home Depot Earnings to Hit Markets

The week ahead could turn out to be an interesting one for traders as a key U.S. inflation indicator is set for release, and quarterly earnings season continues. Let’s take a look:

CPI: Is Inflation Still Sticky? 

On Wednesday, May 15th, it's expected that the markets will get insight into how consumer prices shifted throughout April when the U.S.' latest CPI figures are released. It's estimated that Wednesday's release will reveal prices having risen at an annualised rate of 3.4%, a slight decrease from the 3.5% increase observed in March. This projection remains well above the Federal Reserve's target of 2% annual inflation.

Despite efforts to mitigate inflation through higher interest rates, inflation has persisted above the ideal rate so far in 2024. Fed officials have expressed their reluctance to cut interest rates until a sustained downtrend in price increases manifests.

This prolonged period of elevated inflation, driven in part by accelerated price hikes in Q1 2024, has strained household finances, particularly with essentials such as fuel and groceries becoming more expensive. The Federal Reserve's decision to maintain benchmark interest rates at historic highs has further compounded the burden on Americans’ pocketbooks by keeping borrowing costs elevated for mortgages, credit cards, and other loans.

The United States’ top monetary policymakers continue to closely monitor inflation indicators, as the federal funds rate remains at the same level set in July of last year. Some analysts even foresee the Federal Reserve is unlikely to revise its rate until December.

While rising gasoline prices likely contributed to April's persistent inflation, there are potential bright spots within the report. Core inflation, excluding volatile food and energy prices, is forecasted to have increased by 0.3% month-over-month, a slight dip from the 0.4% observed in March. Additionally, economists have found optimism in the wholesale prices of used cars, which saw a notable decline in April, potentially indicating a forthcoming alleviation in inflationary pressures, although the full impact may not be immediately reflected in the current data. (Source: Investopedia)

Big Box Earnings

More than 90% of firms listed on the S&P 500 have already held their quarterly earnings calls this season, but two more releases are anticipated this week. Home Depot and Walmart are expected to reveal to the public how their businesses fared over the course of the most recent quarter on May 14th and May 16th respectively, and these figures could shed further light on how the continued inflationary pressure may be making an impact on the average citizen’s consumer choices.

Travails for Home Depot?

Some analysts are anticipating slight declines in both sales and earnings compared to 2023's data from Home Depot's (HD) release tomorrow, Tuesday, May 14th. Concerns linger about inflation potentially discouraging consumers from making big-ticket purchases, a sentiment echoed by Home Depot amid the post-pandemic slowdown in home improvement spending.

For Q1 2024, analysts project Home Depot to report $3.54 billion in net income or $3.58 per share on $36.65 billion in revenue, down from $3.87 billion in profit or $3.82 per share on $37.26 billion in revenue a year earlier. While the retailer surpassed expectations in the previous quarter, it noted the fact that there are ongoing challenges posed to the profitability of the home improvement market.

A focal point for Home Depot's growth strategy amidst reduced consumer spending on home improvement projects is the professional contractor market. In a strategic move, the company announced an $18.25 billion acquisition of SRS Distribution, aiming to broaden its footprint in this sector. Home Depot's CEO, Ted Decker, highlighted the potential synergies between SRS's distribution network and Home Depot's extensive product offerings, emphasising a commitment to expanding market share among professional contractors. How May 14th's Q1 results as well as the guidance offered by Home Depot's executive suite may affect the firm's shares, which as of the time of writing remain at nearly the same value with which they closed 2023, remains to be seen.

Walmart Set to Impress?

As retail industry giant Walmart (WMT) prepares to unveil financial results for the initial three months of fiscal 2025, Walmart's resilience and adaptability in the competitive retail landscape stand out. Despite macroeconomic uncertainties, the company has consistently been able to weather economic headwinds by prioritising customer value through competitive pricing and convenience.

March witnessed Walmart stock reaching an all-time high of $61.59. Additionally, the company augmented its dividend by 9% this year, offering an impressive yield of approximately 4%. Such positive indicators may continue to serve as a draw for savvy investors on the trading floors of key Indices.

As anticipation builds for the Q1 earnings report scheduled for May 16 before the ring of the opening bell, analysts anticipate earnings of $0.52 per share, compared to $0.49 per share in the same period last year. Revenue estimates project $159.41 billion, up from $152.3 billion year-over-year.

Having successfully transitioned into the digital space, Walmart now seems to be focused on leveraging its advertising business to drive revenue growth. With e-commerce sales surging around 20% in fiscal 2024, exceeding the $100 billion milestone, the company's Walmart Connect advertising platform presents a strategic avenue for targeted marketing campaigns based on customer behaviour and preferences.

Moreover, Walmart has recently launched endeavours such as AI-powered search capabilities and drone delivery initiatives. The company aims to expand drone delivery services to approximately 75% of households in the Dallas-Fort Worth area by year-end, further enhancing its competitive edge.

Despite challenges, Walmart has consistently outperformed market expectations. Notably, Q4 saw a 6% annual revenue increase to $173.4 billion, with growth across all operating segments. Although comparable store sales moderated, e-commerce sales sustained a 17% increase, contributing to Walmart's ongoing success.

It seems that all lights may be green for Walmart to continue garnering success amid a sometimes challenging general market atmosphere, but trend persistence is never guaranteed when it comes to markets characterised by volatility. It's as yet unknown whether the firm's 15% increase in share value so far this year will be sustained following Thursday's earnings call.

In Conclusion

With the latest CPI data release as well as key retailers’ results set to hit the markets this week, traders and investors alike may get a better sense of how consumers’ preferences may be shifting in a somewhat challenging economic era. As earnings seasons draw to a close, the only certainty is that how all these trends ultimately play out is far from certain.