There is no question where all the attention in the US market has been focused this past week as investors in the big retailers woke up to the threat posed by inflation in a major way.

Titans of the sector suffered falls not seen in decades as the wider US market endured its worst day since the early months of the pandemic.

Not helping sentiment were hints from Federal Reserve officials that the central bank might need to act more aggressively to contain the inflationary threat.

There wasn’t bad news across the board – games maker Take-Two Interactive (TTWO:NASDAQ) impressed as earnings came in way ahead of expectations.

The firm behind the popular Grand Theft Auto series posted earnings per share of $0.95 against the $0.65 pencilled in by analysts and flagged a very full roster of future releases.

US RETAIL

US retailers suffered their worst weekly performance since the Wall Street Crash of 1987 with many high-profile firms being heavily punished for missing forecasts.

The common denominator was they have all been hit with higher costs due to supply chain constraints but none have been able to pass those costs on to their customers.

The worst-affected firms have been those which serve low-income consumers, who are already struggling with energy and food prices.

On Tuesday, Walmart’s (WMT:NYSE) first quarter earnings missed analyst estimates by 12% due to supply chain problems and rising costs, leading the firm to cut its full year outlook and sending its shares down 11%.

On Wednesday, shares in rival retailer Target (TGT:NYSE) fell 25% after the firm’s first quarter earnings missed consensus forecasts by nearly 30%.

‘Throughout the quarter we faced unexpectedly high costs driven by a number of factors, resulting in profitability that came in well below our expectations and well below where we expect to operate over time’, said chief executive Brian Cornell.

On Friday, discount retailer Ross Stores (ROST:NYSE), which owns the Dress for Less brand, also missed market forecasts, sending its shares plummeting 22%.

The firm said in light of the squeeze on consumers it would adopt ‘a more prudent outlook for the remainder of the year’.

Athletic shoe seller Foot Locker (FL:NYSE) was a rare exception to the trend.

Despite posting mixed first quarter earnings and warning supply chain costs would continue to drag on margins, the firm targeted the top end of its range for annual earnings, sending shares 5% higher.

TJX (TJX:NYSE), the owner of TK Maxx discount stores, also jumped on strong first-quarter earnings.

PALO ALTO NETWORKS

US cyber security giant Palo Alto Networks (PANW:NASDAQ) jumped more than 11% in after-hours trading after the California-based firm’s third quarter smashed Wall Street expectations.

Q3 results showed earnings per share of $1.79, well above the $1.68 estimate, on a 29% year-on-year revenue surge to $1.4 billion, beating the Street estimate of $1.36 billion. Q3 billings increased 40% year-on-year to $1.8 billion.

Like most growth companies, Palo Alto shares have struggled this year, losing around 20% to $436.37 before this rally.

‘On the back of this strength across our portfolio, we are again raising our guidance for the year across revenue, billings and earnings per share,’ said Nikesh Arora, chairman and CEO of Palo Alto, implying that the cyber security space remains robust even in the face of the market’s bleak mood.

CISCO SYSTEMS

Despite shortages to critical components in networking equipment, tech conglomerate Cisco’s (CSCO:NASDAQ) hardware sales, including switches, have remained robust. Its secure and agile networking segment saw revenue rise 7% year-on-year to $5.97 billion. Of course, the market didn’t see the positives through the fog of pessimism, sending the stock 17.5% lower over the past week.

Cisco’s purchase of Acacia Communications, which makes high-speed optical interconnect technology, is expected to help drive long-term growth, but it might take a while before investors are willing to peer beyond the next quarter with recession threats very much in in the ascendancy.

DISCLAIMER: AJ Bell is the owner and publisher of Shares. Tom Sieber owns shares in AJ Bell.

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Issue Date: 20 May 2022