Week in Review: November 18, 2022

Markets ended the week lower as waning enthusiasm from the prior week’s consumer price report was unable to overcome hawkish comments by multiple Federal Reserve members and disappointing earnings reports from a key retailer, Target.

Following the prior week’s consumer price index (CPI) report, markets surged in hopes the Fed might take a less aggressive approach to monetary policy moving forward. In what appeared to be a coordinated effort to temper those expectations, multiple Fed members expressed the need for the Fed to remain vigilant in its efforts to fight inflation. St. Louis Fed President James Bullard suggested that under certain scenarios, the Fed might have to raise rates as high as 7% to lower inflation. While unlikely, it reinforced the notion that the Fed must remain aggressive in its fight against inflation.

On Thursday, Target spooked the markets with its 3Q22 earnings report saying that “consumers are showing increasing signs of stress and pulling back from discretionary purchases.” In addition, Target cut its 4Q22 outlook and announced plans to cut $3B in costs over the next three years. The results contrasted with those of Walmart, which raised its 4Q22 earnings guidance. Several factors help explain the difference in results, but in general, Walmart appears to be benefiting from higher-income shoppers “trading down” to shop at Walmart. In addition, Target generates a large percentage of sales from discretionary items, which consumers are currently cutting back.

Through Friday, 94% of S&P 500 companies had reported 3Q22 earnings. Thus far, 69% have beaten their earnings estimate. According to industry group FactSet, aggregate S&P 500 earnings growth is expected to be 2.2%.