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Wednesday August 24, 2016



Wal-Mart Dominates Retail Market

Wal-Mart Stores, Inc. (WMT) announced its quarterly earnings on Thursday, August 18. The world's largest retailer surpassed expectations and raised its earnings outlook for the year.

Wal-Mart reported revenue of $120.9 billion in the second quarter. This was a 0.5% boost from last year's second quarter revenue of $120.2 billion and above the $120.3 billion predicted by analysts.

"We're pleased with the positive momentum in our business," said Wal-Mart CEO Doug McMillon. "Our strategy in the U.S. is working as we delivered an eighth consecutive quarter of positive comps, and international also performed well. We remain focused on building e-commerce capabilities globally and executing our omni-channel plan, as evidenced by our recent alliance with JD.com in China and agreement to acquire Jet.com in the U.S."

Net income in the second quarter increased to $3.8 billion from $3.5 billion a year ago. On an earnings per share basis, profit rose to $1.21 per share compared to $1.08 per share in the same quarter last year.

While other retail giants—like Target, Macy's and Nordstrom—have taken a hit in earnings this quarter, Wal-Mart has remained resilient, largely due to its strong online presence and e-commerce focus. One week prior to releasing its second quarter earnings, Wal-Mart announced its $3 billion purchase of e-commerce site Jet.com—another stride forward in its competition with online retailer Amazon. On Thursday, Wal-Mart increased its earnings outlook for the year to a range of $4.15 to $4.35, up from its previous outlook of $4.00 to $4.30.

Wal-Mart Stores, Inc. (WMT) shares ended the week at $72.81, down 1 % for the week.

Target's Earnings Take a Hit

Target Corporation (TGT) announced its second quarter earnings on Wednesday, August 18. Citing a "difficult retail environment," the company lowered its earnings guidance for the year after slow sales and a drop in earnings.

Target announced revenue of $16.17 billion, down from last year's second quarter revenue of $17.43 billion. This was below the $16.18 billion in revenue expected by analysts.

"While we recognize there are opportunities in the business, and are addressing the challenges we are facing in a difficult retail environment, we are pleased that our team delivered second quarter profitability above our expectations," said Target CEO Brian Cornell. "Although we are planning for a challenging environment in the back half of the year, we believe we have the right strategy to restore traffic and sales growth over time."

Target announced earnings of $680 million, or $1.17 per share. Last year at this time, Target reported earnings of $753 million, or $1.18 per share.

Sales at Target have been sluggish in recent months as it continues to lose sales to online rivals like Amazon. Sales online grew only 16%, compared to 23% in the same quarter last year. Target has taken initiative to boost its sales by directing more funds toward its grocery division and revitalizing its fashion and home goods departments.

Target Corporation (TGT) shares ended the week at $70.12, down 8% for the week.

Home Depot Builds Revenue

Home Depot, Inc. (HD) reported quarterly earnings on Tuesday, August 16. The world's largest home improvement retailer reported strong profits that were largely in line with Wall Street expectations, as homeowners continue to open their pockets and spend their cash on home improvement projects.

Home Depot reported that revenue for the second quarter was $26.47 billion. This represents a 6.6% increase from last year's second quarter revenue of $24.83 billion.

"We had a solid quarter, achieving the highest quarterly sales and net earnings results in company history as housing continues to be a tailwind for our business," said Home Depot CEO Craig Menear. "This was made possible by our hard working associates in their continued dedication to our customers."

The company reported net income of $2.44 billion, up from last year's second quarter earnings of $2.23 billion. Earnings per share for the second quarter were $1.98, up from $1.74 per share a year ago.

Home Depot has once again seen positive quarterly results as it continues to benefit from the healthy housing market and strong consumer spending. The company's results came on the tail of July's housing starts release, which indicated that housing starts increased 2.1% to 1.21 million units, the highest level since February and well above the 1.18 million units expected by analysts. In light of the strong market and continued demand, Home Depot announced on Tuesday that it is raising its full-year profit forecast from $6.27 per share to $6.31 per share.

Home Depot, Inc. (HD) shares ended the week at $134.46, down 2% for the week.

The Dow started the week of 8/15 at 18,589 and closed at 18,553 on 8/19. The S&P 500 started the week at 2,186 and closed at 2,184. The NASDAQ started the week at 5,242 and closed at 5,238.

Treasury Yields Seesaw on Rate Hike Speculation

U.S. benchmark Treasury yields dropped on Wednesday and then edged slightly higher on Thursday as investors struggled to interpret Fed comments. Speculation regarding if, or when, the Fed will raise interest rates continues to impact demand.

On Wednesday, Treasury yields fell after the release of minutes from the Fed's July 26-27 policy meeting, which gave many investors the impression that the Fed is in no hurry to raise interests rate. While a few Fed policy makers seemed to push for a rate hike as early as September, they were outnumbered by those who occupied a "wait and see" position.

"These minutes show a multitude of opinions with no clear voice on when to hike rates," said Gennadiy Goldberg, an interest-rate strategist at TD Securities. "[The minutes] are less hawkish than the market had been expecting."

However, on Thursday, yields rose after comments from New York Federal Reserve President William Dudley indicated a more positive economic outlook. Dudley focused his comments on the improving job market, noting that "for the first time in quite a while, gains in middle-wage jobs actually outnumber gains in higher and lower-wage jobs nationwide."

Yields were also helped by comments from San Francisco Fed President John Williams late Thursday, who noted that he would like to see another interest rate rise "sooner rather than later." In early trading on Friday, the yield on the 10-year Treasury note had risen 5.4 basis points to 1.59%.

However, despite the slight uptick, Fed-fund futures, used to gauge the Fed's policy positions, indicated that the odds of a rate increase by the Fed's September meeting were only 18% on Thursday. In contrast, they indicated a 48% likelihood of a rate increase at the December meeting. Investors are hoping to gain more clarity from Fed Chairwoman Janet Yellen's comments next week at the Kansas City Fed's annual symposium in Jackson Hole, Wyoming.

The 10-year Treasury note yield finished the week of 8/15 at 1.58%, while the 30-year Treasury note yield was 2.28%.

Mortgage Rates Edge Lower

Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, August 18. The report indicated that rates have fallen slightly lower and continue to remain near record lows.

The 30-year fixed rate mortgage averaged 3.43% this week. This represents a decrease from last week when it averaged 3.45%. Last year at this time, the 30-year fixed rate mortgage averaged 3.93%.

This week, the 15-year fixed rate mortgage averaged 2.74%. This was lower than last week's average of 2.76%. The 15-year fixed rate mortgage averaged 3.13% one year ago.

"Ahead of the release of the FOMC minutes for July, 10-year Treasury yields were little changed from the prior week," said Sean Becketti, Chief Economist at Freddie Mac. "The 30-year fixed-rate mortgage fell 2 basis points to 3.43% this week, erasing last week's uptick. For eight consecutive weeks mortgage rates have ranged between 3.41 and 3.48%. Inflation is not adding any upward pressure on interest rates as the Bureau of Labor Statistics reported that the Consumer Price Index was unchanged in July."

Based on published national averages, the money market account finished the week of 8/15 at 0.48%. The 1-year CD finished at 1.15%.

Published August 19, 2016
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