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What to Expect in the Week Ahead (TGT and Palo Alto Earnings; FOMC Minutes and Powell's Jackson Hole Speech)

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What to Expect in the Week Ahead (TGT and Palo Alto Earnings; FOMC Minutes and Powell's Jackson Hole Speech)

As of the week ending August 16th, market sentiment has significantly improved. US stock indices opened lower on Friday but rallied later in the day, with both the $S&P 500 Index (.SPX.US)$ and $Nasdaq Composite Index (.IXIC.US)$ posting gains for the seventh consecutive day. They rose 3.9% and 5.2% respectively for the week, marking their best performance since October last year and ending a four-week losing streak. The "fear gauge" $CBOE Volatility S&P 500 Index (.VIX.US)$ dropped below 15, reaching its lowest level in over three weeks. Retail data and initial jobless claims eased concerns of an economic downturn in the US, while lower-than-expected PPI and CPI data increased hopes for the first interest rate cut of the year in September. Furthermore, the stability of the yen has also boosted market sentiment.

As the earnings season approaches its end, a few notable retailers and a cybersecurity giant, $Palo Alto Networks (PANW.US)$, are set to disclose their earnings in the upcoming week. $Lowe's Companies (LOW.US)$ is scheduled to release its earnings on Tuesday before the market opens, whereas $Target (TGT.US)$ and $TJX Companies (TJX.US)$ will report their earnings on Wednesday before the market opens.

Target Earnings Preview

$Target (TGT.US)$ is set to release its Q2 2024 earnings report on Wednesday, August 21, before markets open. Analysts are expecting a rise in sales and profits compared to last year, as Target has been cutting costs and lowering prices to boost sales and margins. According to analysts, sales are projected to increase modestly to $25.21 billion from $24.77 billion in the same period last year. EPS is also expected to rise to $2.14 from $1.80 a year ago.

According to Tesley Advisory Group's analyst Joseph Feldman:

"Broadly, we believe consumers are showing resiliency as they continue to search for value and focus on essentials, while selectively spending on discretionary items and responding to innovation and newness."

As for the full-year outlook, JPMorgan analysts have noted that Target could be poised to narrow down the top half of the range for both comparable sales and EPS. This is expected to put pressure on Target shares in the near-term. They also expect the company's second-half margins to be affected by more frequent promotions to boost sales.

Despite this, Baird analysts are optimistic, stating that Target has “enough levers” to control its spending and affirm its $8.60 to $9.60 full-year adjusted EPS projection. The positive retail environment and encouraging retail sales data, along with $Walmart (WMT.US)$'s earnings beat, provided a favorable backdrop for Target's earnings report. However, Target's stock performance could be influenced by the trends in customer spending and inflation, which have been affecting the sales of necessities versus discretionary items. $Macy's (M.US)$ and $TJX Companies (TJX.US)$ are also set to release their earnings reports on the same day.

Palo Alto Earnings Preview

$Palo Alto Networks (PANW.US)$, a leading cybersecurity company, is set to report results for its fiscal Q4 after markets close on Monday, August 19. Analysts are anticipating that Palo Alto Networks' revenue will grow to $2.16 billion from $1.95 billion in the same quarter last year. Net income is expected to reach $232.9 million, or 66 cents per share, representing a slight increase compared to the year-ago period but a sequential drop.

Palo Alto Networks has been facing challenges due to spending fatigue among its customers, which has been affecting the cybersecurity industry as a whole. Analysts expect the company to provide guidance for the full fiscal year 2025, with projected revenue of $9.09 billion. The company's platformization strategy, aimed at consolidating its cybersecurity services and offering bundled solutions, is an area of focus to mitigate the impact of spending fatigue.

While Palo Alto Networks has noted that customers have responded positively to the platformization, the recent worldwide outage caused by a faulty $CrowdStrike (CRWD.US)$ update may prompt queries about the market's prospects. Investors are expected to monitor for possible updates regarding the impact of the CrowdStrike outage, including whether it could result in customers abandoning CrowdStrike in favor of alternative cybersecurity providers. Analysts have suggested that Palo Alto Networks could attract new customers as a result.

In the week ahead, investors are advised to closely monitor several key macroeconomic events that could significantly impact the market. These events include the release of the FOMC minutes, a speech by US Fed Chair Jerome Powell at the Jackson Hole Economic Symposium, and global economic trends.

The FOMC minutes, scheduled for Wednesday, and Powell's speech at the Jackson Hole Economic Symposium on Friday, August 23, will be closely observed by global investors. They are eager to gain insights into the Fed's monetary policy outlook and its updated assessment of US economic growth. The symposium is strategically timed just before the September policy meeting, where the Fed is expected to initiate a rate cut cycle. While most experts anticipate a 25 basis point reduction in the Fed funds rate in September, some economists suggest that the possibility of a 50 basis point cut may increase if there are further signs of weakness in the labor market.

In addition to the FOMC minutes and Powell's speech, investors will also be closely monitoring various economic data releases next week. These include the weekly jobs data, US existing home sales, and new home sales data new home sales data from the US, as well as inflation data for July from Europe and Japan. Flash numbers for the manufacturing and services PMI in August from several key economies will also be watched closely.