news/AMZN/2023.02.19/Wall St Week Ahead-Retailers' results may be next test for rally in U.S. stocks.txt

NEW YORK, Feb 17 (Reuters) - Earnings results from major
retailers in the coming weeks will test the strength of the U.S.
stock market rally, as investors gain insight into the health of
consumer spending and the fallout on company bottom lines from
inflation.As a tepid fourth-quarter results season comes to an end,
Walmart and Home Depot are set to report in the
coming week, with other high-profile retailers including Best
Buy and Lowe's due the following week.
How consumers are faring amid soaring prices will be a
critical topic for investors, as some have become more confident
that the economy will be able to avoid a severe downturn even as
the Federal Reserve continues hiking rates to tamp down
inflation.One sign of economic resilience came in the past week, when
monthly data showed U.S. retail sales increased by the most in
nearly two years in January.“The retail sales numbers were reasonably strong, and we
want to see that confirmation come from the retailers
themselves,” said Paul Nolte, market strategist at Murphy and
Sylvest Wealth Management.Nolte is considering buying home-improvement retailer stocks
that were hit hard in 2022 as the housing market struggled.Stocks have run up despite underwhelming fourth-quarter
earnings that has S&P 500 firms on track to post a 2.8% drop in
profits from the year-ago period, according to Refintiv IBES.
Other companies set to report next week include chip company
Nvidia, COVID-19 vaccine maker Moderna and
e-commerce firm eBay.The S&P 500 has gained 6.5% so far in 2023 as of Thursday,
with stocks bouncing back from a brutal performance last year.Retail stocks have put up mixed returns so far in 2023. The
SPDR S&P Retail ETF, which weights small and large
companies fairly evenly, has jumped 17% this year. But the
performance has been less rosy for some of the biggest
companies.Shares of Walmart, the world's largest retailer by sales,
have gained only 1.7% in 2023, while shares of Home Depot, the
top U.S. home improvement chain, are also up 1.7%. Both
companies are set to report on Tuesday and will "set the stage
for everyone else," according to JPMorgan retail analysts."We expect HD and WMT’s tone on guidance and the consumer to
be cautious at best," the JPMorgan analysts wrote in an earnings
preview note this week. They rate Walmart shares "neutral" and
Home Depot as "overweight."Among the other retailers set to report in the coming week
are TJX Companies and Bath & Body Works.Peter Tuz, president of Chase Investment Counsel, said he
will be watching to see if retailers have been able to push up
prices to match their costs.His firm holds shares of a variety of retailers including
discounter Dollar Tree and specialty retailers Crocs
and Ulta Beauty, but does not own broad
retailers like Walmart and Amazon."We are clearly emphasizing retailers in select industries
versus the mass market retailers," Tuz said. "With the mass
retailers, it’s just harder to identify what is going to make
them grow.”Investors next week will also focus on Wednesday's release
of minutes from the Fed's latest meeting, when the central bank
scaled back its rate hikes to a quarter-point after a year of
heftier raises.Since that meeting, data has shown U.S. consumer prices
accelerating and monthly producer prices increasing by the most
in seven months in January.Together with a strong U.S. jobs report, the data has led
investors to push up expectations for how high the Fed will
raise rates and how long they will stay elevated, with futures
now pricing in a peak rate of over 5.2% in July.Extremely robust retailer earnings could fuel worries about
a more hawkish response from the Fed, said Chuck Carlson, chief
executive officer at Horizon Investment Services."If those numbers come in and are really, really, really
strong, that could be this idea that too much good news is bad
news from a Fed perspective,” Carlson said.(Reporting by Lewis Krauskopf
Editing by Bill Berkrot)