The major indexes swung to a positive finish Tuesday after shrugging off a couple of would-be headwinds.
"After holding on to slight gains late in the trading session yesterday, U.S. equities came under considerable pressure overnight and in the early hours this morning, with two major catalysts driving this early underperformance," notes Michael Reinking, senior market strategist at the New York Stock Exchange.
First among those was Target (TGT, -2.3%), which sold off this morning after announcing a plan to aggressively "right-size" its inventory and said its operating margin for the second quarter would be lower than expected. Among the actions Target said it planned to take included further markdowns of already discounted wares and canceling existing orders.
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Says CFRA analyst Aran Sundaram: "Target is likely struggling more than other big-box retailers given its sales mix is more discretionary in nature (food and beverage is only 20% of annual sales vs. 50%+ for Walmart and Costco), compounded by its lack of fuel stations (a disadvantage when consumers are consolidating shopping trips) and relatively smaller stores, which makes it difficult to store excess inventory without compromising guest experience."
The other downward pressure Reinking highlighted came from the other side of the world: The Reserve Bank of Australia surprised most economists by raising its benchmark rate by 50 basis points to 0.85% – the country's largest rate in more than two decades.
"The bank cited soaring inflation as the primary area of attention and noted that additional rate hikes will undoubtedly be required to tame rising prices," he says, adding that Thursday's European Central Bank policy meeting should be on market watchers' radar.
Energy stocks (+3.0%) were easily the best sector despite a slight decline in U.S. crude oil futures (-0.3% to $118.50) per barrel. Helping the effort there was an upgrade to Exxon Mobil (XOM, +4.6%) shares from Evercore ISI analyst Stephen Richardson, to Outperform (equivalent of Buy) from In-Line (Hold).
The Dow Jones Industrial Average finished 0.8% higher to 33,180, the S&P 500 was up 1.0% to 4,160, and the Nasdaq Composite gained 0.9% to 12,175.
Other news in the stock market today:
- The small-cap Russell 2000 jumped 1.6% to 1,919.
- Gold futures gained 0.5% to settle at $1,852.10 an ounce.
- Bitcoin declined 1.4% to $30,980.47. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.)
- Kohl's (KSS) shares surged 9.5% after the department store chain said it is in talks with Franchise Group (FRG, +4.8%) – parent company of The Vitamin Shoppe – to discuss the latter's potential acquistion of KSS for $60 per share, a 44.2% premium to Monday's close at $41.62. The two parties will undergo a three-week exclusive negotiation process in order "to allow FRG and its financing partners to finalize due diligence and financing arrangements and for the parties to complete the negotiation of binding documentation," according to a press release. Both companies' boards of directors will need to approve the acquisiton, as well.
- J. M. Smucker (SJM) gained 5.7% after the consumer staples stock reported earnings. In its fiscal fourth quarter, SJM recorded adjusted earnings of $2.23 per share on $2.03 billion in revenue, more than the $1.88 per share and $1.98 billion analysts were expecting. However, gross profit fell 9% year-over-year due in part to the company's volauntary recall of Jif peanut butter and it guided for lower-than-anticipated earnings for its upcoming fiscal year. "While we are pleasantly surprised by SJM's sales outlook for fiscal 2023, we think it is prudent to take a more cautious view given recent shifts in consumer behavior (e.g., trade down to value) and the increased likelihood of retail customers pushing back on incremental pricing actions announced by packaged food companies," says CFRA Research analyst Arun Sundaram, who maintained a Hold rating on SJM.
What Stocks Are Billionaire Investors Unloading?
The major indexes are trying to repair some of the damage from 2022's broad-market rout. The Dow is up roughly 6% from its May 19 closing lows, while the S&P 500 is up nearly 7%. And the Nasdaq has recovered by more than 8% since its May 24 nadir.
But some strategists are expressing skepticism about how durable these gains are.
"Any rally would be welcomed by investors, and to some extent, expected," says John Lynch, chief investment officer for Comerica Wealth Management. "Yet, a history of countertrends, or bear market rallies, shows that when the S&P 500 is in a downtrend, rebounds can be both quick and fleeting."
Lynch cites a Strategas Research Partners study highlighting data since 1950 that shows the average bear market rally sees gains of roughly 15% and lasts about two months.
"Given that the Federal Reserve is only just embarking on its interest rate tightening campaign, including balance sheet runoff, we suspect any near-term gains would be of this countertrend variety," he adds.
More-active investors looking to shed a little weight to free up cash for an eventual reversion lower might consider taking a cue from the hedge fund set. Yesterday, we pointed you in the direction of stocks that billionaires have been buying of late, but today, we're going to focus on their more bearish moves.
The following 20 stocks received the cold shoulder from at least one billionaire in the most recent quarter, with these mega-money investors shedding substantial parts (if not all) of these stakes.
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