THIS WEEK WITH SADIQ

Walmart Hit Record Highs. Will Other Companies Follow?

May 21 to 24, 2024

THIS WEEK WITH SADIQ

Walmart Hit Record Highs. Will Other Companies Follow?

May 21 to 24, 2024

Commentary

Market Recap

  • Equity markets were mostly higher this week, as the closely-watched U.S. Consumer Price Index (CPI) report didn’t seriously disappoint—it certainly wasn’t great, but we’ve been conditioned to deal with bad inflation prints.
  • The S&P 500 rose 1.5%, while the tech-heavy Nasdaq led with a 2.1% advance. The gains saw the S&P 500 reclaim record levels, while the Dow pushed above 40,000.
  • Canadian stocks lagged, up 0.7% on the week as declines in Energy and Industrials offset gains in Materials and banks.

Walmart

Last week, Walmart’s earnings beat caused its stock to surge to all-time highs. What is this telling us about the consumer? The company’s strong earnings demonstrate that Consumer Staples is where consumers are spending their money more and more as they look for bang for their buck. Walmart tends to deliver on that front, so an earnings uptick is no surprise. Our thesis is that both high-end and low-end retail sales are doing well because the consumer remains fairly resilient, but the middle is weakening as that segment of consumers trades down. In our view, caution is warranted when it comes to owning companies in that middle segment of the retail market. The stock price movement highlights that investors are evaluating companies from the standpoints of valuation and the current economic environment. Through those lenses, Walmart looks like a company with capabilities that mesh well with the current state of the consumer. Looking ahead, we’ll be closely monitoring results from Target and other companies within the Consumer Staples sector. That will provide clarity on whether Walmart’s earnings were a company-specific story or part of a broader trend as we suspect.

Bottom Line: We think Walmart’s strong earnings are an indication that the consumer continues to shift in terms of its spending.

Inflation

Interest rate expectations have resembled a tennis match lately: back and forth, back and forth. Six months ago, people were talking about as many as six rate cuts in 2024; within the last couple of months, speculation turned back to potential rate hikes. After the recent U.S. inflation data for April showed signs of cooling, renewed questions about accelerating the schedule for cuts have popped up. Our evaluation is that we’re back to the stage where no one wants to raise rates; it would take an extraordinary amount of data to persuade the U.S. Federal Reserve (Fed) to go higher. In order to cut, all the Fed requires is greater confidence that inflation will not spike back up after they act. While much is out of the Fed’s control, one thing they can do is manage expectations. For instance, when they do decide to cut, we expect them to emphasize that the decision does not mean that cuts will be coming at every meeting, and that future decisions will remain data dependent.

Bottom Line: It is not a question of if interest rates will ease—it’s a matter of when.

Meme Stocks

Meme stocks—equities that go “viral” due to interest from online communities, and whose performance often isn’t tied to actual results or potential—are back in the news. GameStop and AMC were among the names that surged last week on interest from retail traders before tapering off. What caused this resurgence? For starters, the S&P 500, Nasdaq, and Dow Jones all hit record highs last week. That kind of performance is an excellent sign given high interest rates, and sticky inflation. It tells people that the economy and consumer are relatively resilient. It’s that optimism that likely drove the recent meme stock rebound. That said, this surge was quite different than in the past because it fizzled out quickly—it appeared to be a quick trade rather than a concerted effort to push shorts into trouble, as had been the case in previous meme stock cycles. There were also fewer shorts out there than there were a few years ago because of what had happened to these stocks previously. These changes to the market environment seemed to make it more difficult for the surge to last.

Bottom Line: Meme stocks are an interesting story, but in this case, the surge seemed to barely get off the ground.

Positioning

For a detailed breakdown of our portfolio positioning, check out the latest BMO GAM House View Report, titled The Fed’s Last Stand: A Solitary Rate Cut Expected for 2024.

Disclosures:

The viewpoints expressed by the Portfolio Manager represents their assessment of the markets at the time of publication. Those views are subject to change without notice at any time without any kind of notice. The information provided herein does not constitute a solicitation of an offer to buy, or an offer to sell securities nor should the information be relied upon as investment advice. Past performance is no guarantee of future results. This communication is intended for informational purposes only.


BMO Global Asset Management is a brand name under which BMO Asset Management Inc. and BMO Investments Inc. operate.


Any statement that necessarily depends on future events may be a forward-looking statement. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although such statements are based on assumptions that are believed to be reasonable, there can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to rely unduly on any forward-looking statements. In connection with any forward-looking statements, investors should carefully consider the areas of risk described in the most recent simplified prospectus.


This article is for information purposes. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party. Investments should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance.


Commissions, management fees and expenses (if applicable) all may be associated with investments in mutual funds. Trailing commissions may be associated with investments in certain series of securities of mutual funds. Please read the fund facts, ETF facts or prospectus of the relevant mutual fund before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Distributions are not guaranteed and are subject to change and/or elimination.


For a summary of the risks of an investment in the BMO Mutual Funds, please see the specific risks set out in the prospectus. ETF Series of the BMO Mutual Funds trade like stocks, fluctuate in market value and may trade at a discount to their net asset value, which may increase the risk of loss. Distributions are not guaranteed and are subject to change and/or elimination.


BMO Mutual Funds are managed by BMO Investments Inc., which is an investment fund manager and a separate legal entity from Bank of Montreal.


®/™Registered trademarks/trademark of Bank of Montreal, used under licence.

Insights

Commentary
June 24, 2024

Chairman Powell: The Ultimate Bond Villain?

What’s causing the gap between Canadian and U.S. equities? What is the source of recent bond volatility, and will it persist for the rest of 2024?
Banner image of vehicle shifter with stock market graphic overlay
House view
June 21, 2024

Shifting to Neutral: The Case for Optimistic Caution

In early June, the Bank of Canada (BoC) became the first of the world’s major central banks to lower interest rates, cutting by 25 basis points. a day before the European Central Bank (ECB) made the same move. But in the United States, it is a different story.
Steven Shepherd profile photo
Commentary
June 19, 2024

BMO ETF Portfolios’ June commentary: “Downshift to Neutral”

While our longer-term outlook for equities remains positive, there are a number of short-term tailwinds that are materializing, in our view.
Sadiq Adatia
Sadiq Adatia
Commentary
June 17, 2024

Counting on 24-Karat Rate Cuts

How are the Fed’s interest rate projections impacting the market’s expectations? Have gold prices reached their ceiling?
Commentary
June 17, 2024

Bridging the “Alternatives Gap”

Historically, individual accredited investors have lacked access to these kinds of alternative investments.
Commentary
June 17, 2024

The Evergreen Solution

Private markets have the potential to increase returns and diversify risk away from public holdings.

Website attestation

you are entering the BMO Global Asset Management (GAM) Institutional website.

Read our Terms and Conditions
Click here to contact us

This information is for Investment Advisors only. By accepting, you certify that you are an Investment Advisor. If you are NOT an Investment Advisor, please decline and view the content in the Investor or Institutional areas of the site. The website is for informational purposes only and is not intended to provide a complete description of BMO Global Asset Management’s products or services. Past performance is not indicative of future results. It should not be construed as investment advice or relied upon in making an investment decision. The opinions expressed are subject to change without notice. Products and services of BMO Global Asset Management are only offered in jurisdictions where they may be lawfully offered for sale. The information contained in this website does not constitute an offer or solicitation by anyone to buy or sell any investment fund or other product, service or information to anyone in any jurisdiction in which an offer or solicitation is not authorized or cannot be legally made or to any person to whom it is unlawful to make an offer of solicitation. All products and services are subject to the terms of each and every applicable agreement. It is important to note that not all products, services and information are available in all jurisdictions outside Canada.