US Open: Wall Street opens lower ahead of Nvidia earnings 🚩Target shares in panic, Microstrategy surges

• U.S. indices open the session with slight declines; Nvidia (NVDA.US) loses 1.6%; U.S. post-session results
• US500 and US100 lose in 0.4 - 0.6% range; 10-year bond yields gain nearly 5 basis points to 4.45%; dollar on a tear 
• Semiconductor sector under pressure, Qualcomm loses nearly 5%; Target (TGT.US) shares lose 21% after disappointing financial results
• Microstrategy (MSTR.US) gains 11% on the wave of Bitcoin's new ATH above $95K level

U.S. index contracts open the session with slight declines, with the VIX volatility index gaining nearly 3%. Expectations of economists surveyed by Bloomberg suggest higher inflationary risks and only limited rate cuts in 2025, largely driven by tariff policies proposed by the new administration in the US. Market sentiment is indicating progressive caution, with investors clearly entering risk aversion mode ahead of a key report for Wall Street as a whole i.e. the Nvidia results, which will be announced after the US session.

• Bloomberg Intelligence indicated that the report could bring the first disappointment in 8 quarters, as supply chain data tracked by Bloomberg suggests sales in the $30 - $35 billion range in Q3; likely burdened by manufacturing issues. The question is whether the company will come up with forecasts strong enough to completely erase the possible surprise of a weaker report.  Here, the situation looks more favorable; NVDA's largest customers are planning increased CAPEX for AI-related 'infrastructure'.
• Attention was 'stolen' by Target's very weak results, which cast a shadow of doubt on the real strength of US consumers, in prosperous industries. Walmart's recent strong report indicates that consumers are leaning toward lower prices, which could mean a painful shift in consumer trends for some chains, or suggest that the budgets of many households remain tight. On the other hand, Microstrategy is gaining almost 12% after Bitcoin 'bounced' by almost 4%, surpassing the ATH at $95k.

US500 (H1 interval)

Source: xStation5

Source: xStation5

Target pressured by weak quarterly results 

Target's (TGT.US) third-quarter results were weak, and the outlook for the next festive quarter disappointed expectations, with Wall Street seeing a significant loss of market share to Walmart (WMT.US), which is doing well and attracting higher-income shoppers, posing further long-term risk to competitor retailer Target. Both sales and adjusted EPS numbers came in well below market's consensus.

• Target may have to use more aggressive promotional campaigns which adds to the financial uncertainty for 2025. Third quarter results were worse than already lowered forecasts, raising the prospect of improved margins in the future.
• Investment in e-commerce development may be necessary, but risks lowering margins. Currently Target is less profitable in e-commerce than Walmart, further complicating the situation.
• The market's reaction to the report was stronger than expected, which may indicate legitimate, deeper concerns among investors. Target's poor performance could have negative implications for other retailers, such as Kohl's
• A number of analysts including Citi lowered their recommendations for the company, following the results. DA Davidson pointed out that the company is doing better in a strong consumer environment and could still benefit from a possible recovery in retail. Stifel, on the other hand, found the results disappointing; evident weakness in comparable sales. Some point out that Target may have trouble competing with Walmart's growing and more profitable e-commerce channel

THIRD QUARTER RESULTS

Sales $25.23 billion, +0.9% y/y, estimates $25.74 billion
Adjusted EPS $1.85 vs. $2.10 y/y, $2.30 estimate

• Comparable sales +0.3% vs. forecast +1.48% (nearly 5% annual decline)
• Comparable digital sales (e-commerce) +10.8%, estimate +4.69%
• Operating income $1.17 billion, -11% y/y, estimate $1.46 billion
• Gross margin 27.2%, estimates 28.7%
• Ebit $1.20 billion, -11% y/y; Ebitda $1.95 billion, -5.5% y/y, estimates $2.16 billion
• Customer transactions +2.4%
• Average transaction amount -2%, estimates -1.08%
• Digital sales share of total sales 18.5%
• Total number of stores 1,978, estimate 1,972
• Operating margin 4.6%, estimate 5.63%
• Comparable store sales -1.9%, estimated +1.49%
• Store sales 81.5%, estimate 82.7%

2025 FORECAST.

• Adjusted EPS $8.30-$8.90, 9-9.70, estimate $9.57 (Bloomberg)

FOURTH QUARTER FORECAST

• Assumes adjusted EPS of $1.85 to $2.45, estimates $2.65.
• Comparable sales 'at similar levels'

Target shares (D1)

Target's shares are trading down 21% today and reversing to a downtrend; they have not been able to break above the EMA200 (red), the level at which major resistance currently runs. Today they are testing the 2022 lows.

Source: xStation5