A surprise 90-day trade war truce between the US and China and walkdown on tariffs (Monday 12 May) put a rocket under stocks this week, sending the benchmark S&P 500 index up 4.5%.
Technology stocks led the gains with the Nasdaq Composite index gaining more than 6% on the week despite bonds selling off with the 10-year treasury yield briefly climbing through 4.5% before retracing.
The strong rally has seen the S&P 500 gain around 15% since the liberation day-induced sell-off and takes stocks to within 5% of all-time highs reached in February.
April retail sales (14 May) excluding volatile autos and fuel gained 0.2%, missing estimates calling for a 0.3% rise. This follows the largest increase in retail sales for two years in March as consumers brought forward purchases ahead of tariffs.
Other economic data pointed to a weakening in activity with US producer prices declining by the most in five years and factory production contracting for the first time in six months.
UNITEDHEALTH
Troubled health insurance and health care services company UnitedHealth (UNH:NYSE) extended its recent losses, with the share price now having more than halved since mid-April, as it emerged the company was under investigation by the US justice department.
The company is being investigated for potential Medicare fraud – with the Wall Street Journal reporting the issues relate to its Medicare Advantage programme. The company already faces probes into potential antitrust violations and a civil investigation of its Medicare billing practices.
Potential cuts to federal health spending continue to loom over the business which also shocked the market with news of the sudden exit of CEO Andrew Witty on 13 May for ‘personal reasons’ as it withdrew full-year financial guidance. Current chair and former CEO Stephen Hemsley has taken over the top job.
Last year UnitedHealth had to contend with a cyber attack on one of its technology units which disrupted payments to US health care firms for months and the murder of the head of its insurance division Brian Thompson.
WALMART
Despite delivering forecast-beating first-quarter earnings (15 May), Walmart’s (WMT:NYSE) shares cheapened 2.75% to $94.2 on its first quarterly sales miss since 2020 and a warning from the world’s biggest retailer that it will have to raise prices due to Donald Trump’s tariffs.
For the quarter ended 2 May, Arkansas-based Walmart delivered a 2.5% increase in revenue to $165.6 billion, below the $165.8 billion Wall Street scribes were calling for, although US comparable sales growth of 4.5% beat forecasts and adjusted earnings per share of 61 cents topped the 58 cents expected.
‘We will do our best to keep our prices as low as possible, but given the magnitude of the tariffs, even at the reduced levels announced this week, we aren’t able to absorb all the pressure given the reality of narrow retail margins,’ conceded CEO Doug McMillon.
The US consumer bellwether, whose e-commerce arm posted a first profitable quarter, also stuck by its conservative full-year forecast for 3% to 4% sales growth and adjusted earnings in the $2.50 to $2.60 range.
FOOT LOCKER
In a surprise move, retailer Dick’s Sporting Goods (DKS:NYSE) agreed to buy Foot Locker (FL:NYSE) this week for $24 per share or $2.4 billion, sending Foot Locker sharply higher.
The deal, which is Dick’s largest in the sports goods industry, is the second the second in the footwear sector this month after Skechers (SKX:NYSE) agreed a $9.4 billion buyout by private equity firm 3G Capital.
Pennsylvania-based Dick’s said the acquisition would create a ‘global platform within the growing sports retail industry, positioned to serve evolving needs of a broader range of consumers through innovative store concepts and digital experiences’.
The retail sector is facing hard times in the US after the introduction of tariffs on imported goods, in particular footwear, the majority of which is made overseas.
Foot Locker has been losing market share for some years due to competition from direct-to-consumer businesses and falling customer visits to indoor malls where most of its stores are located.
On the day the deal was announced, Foot Locker revealed it expected to make a first-quarter loss of 7c per share compared with consensus estimates of a 2c per share loss and a profit of 22c per share a year ago.
