NEW YORK (
) -- Those holding out for QE3 next month may be disappointed but such is the trade-off when the economic data improves.
On the heels of July's decent jobs report and the retail sales rebound along with other promising data points, the case for urgency when it comes to more accommodation from the
takes a hit.
In contrast to a number of other forecasters, we do not expect a move to QE3 at the September 12-13 FOMC meeting," wrote Jan Hatzius, chief U.S. economist at Goldman Sachs. "Although Fed officials clearly adopted a strong easing bias at the July 31-August 1 FOMC meeting, we do not think that this amounts to a pre-commitment to QE3. Instead, we believe that continued weakness is necessary to prompt a substantial easing move. And so far, that weakness is not showing up in the data."
Hatzius now expects Ben Bernanke & Co. won't sign off on expanding the central bank's balance sheet until late 2012/early 2013.
"To be clear, our own view remains that there is a very solid case for additional accommodation under the Fed's dual mandate of maximum employment and 2% inflation," he said. "And we do believe that Fed officials will ultimately decide to ease policy further."
Hatzius also said other factors aside from the economic data have recently "swung against the expectation of aggressive near-term easing."
"The inflation outlook has become a bit cloudier in the wake of the recent recovery in commodity prices; while Tuesday's upside surprise on producer prices was largely driven by volatile sectors such as vehicles and tobacco, underlying price pressures were also a touch firmer than we had expected," he said. "Moreover, our GS financial conditions index has now fully unwound the tightening seen in the second quarter, and we have found previously that the meeting-by-meeting probability of Fed easing is quite sensitive to financial conditions."
The situation could change quickly though, Hatzius acknowledges, especially after the recent chatter from Fed officials about the possibility of a bond-buying program based on certain economic goals being met, rather than being relegated to a set amount, i.e. $600 billion in bond purchases over six months.
"To be sure, the uncertainty around the near-term trajectory of Fed policy remains substantial," he said. "Several FOMC meeting participants, specifically Presidents Evans, Rosengren, and Williams, are making the case for additional easing via potentially open-ended balance sheet expansion. And it might well be that Chairman Bernanke will use his speech at the upcoming Jackson Hole Symposium to explain why the Fed's mandate calls for further accommodation in the near term. We will be receptive to these messages and will review our monetary policy forecasts as needed."
The rest of 2012 already promises to be eventful on the domestic front with the presidential election and the fiscal cliff ahead but investors buying stocks now on the expectation of QE3 arriving sooner rather than later may be in for a long wait.
As for Thursday's scheduled news,
reports its second-quarter results before the opening bell, and the average estimate of analysts polled by
is for a profit of $1.17 a share in the July-ended period on revenue of $115.8 billion.
The world's largest retailer is faring well in these tight economic times with U.S. same-store sales once again showing growth and the stock rising more than 20% so far in 2012 to be one of the top performers within the Dow.
In fact, the recent high of $75.24 on July 30 was the stock's best level in more than a decade. And even after this impressive run, the shares trade at a fairly reasonable price-to-earnings multiple of 13.9X and sport a forward annual dividend yield of 2.1%.
There is some concern brewing on the sell side at this valuation though with 18 of the 29 analysts covering the stock at hold and the 12-month median price target at $72.
Jefferies lifted its price target on the shares to $74 from $57 on Monday but kept its hold rating. The firm is taking its cue from Wal-Mart's management, saying it's bullish about the coming quarter because the executives in Bentonville, Ark. are.
"Throughout Q2, management expressed optimism for its strategies aimed at driving traffic and SSS. Following above plan Q1 sales, aided by weather and inflation, expectations for further improvement in Q2 have materialized and we think shares are pricing in a US Wal-Mart comp at the high end of 1-3% plan or slightly better," Jefferies said. "We aren't going to the high end or better, but we are moving our US comp assumption to 2.5% and EPS to $1.18."
The firm is expecting earnings of $1.18 a share, the high end of the company's $1.13-$1.18 per share guidance, saying: "Our checks suggested a strong May and July, with a slight deceleration in June, similar to the broader industry."
Wal-Mart has been emphasizing its commitment to having the lowest prices of late and Jefferies notes this has the potential to hurt the bottom line, even as it drives expansion on the top. The firm is expecting a gross margin decline of 24 basis points in the quarter on a year-over-year basis but projects Wal-Mart will be able to counter the impact by leveraging selling, general and administrative expenses by a like amount.
"Although it seems modest and less obvious to some of its competitors, Wal-Mart isinvesting in everyday low price to reinforce its value message with customers," Jefferies said. "This strategy is not a one quarter even, but more work in progress, as price investment has been promised to roughly match expense leverage. Expense saving appears to be coming in labor and benefits as well as advertising."
How Wal-Mart fares in the current quarter is the key to whether the stock can move another leg higher, the firm said, so any commentary about how August is tracking will surely perk up the ears of investors.
"Q3 a year ago, Wal-Mart turned positive comp store sales, primarily reflecting a big benefit from SKU add-backs as well as inflation," Jefferies said. "Lapping this and comping above 2-3% will be the challenge for WMT to surmount and likely what is needed for the stock to march up the next 10-20%."
S&P Capital IQ
also got more bullish on Wal-Mart this week, lifting its price target on the stock to $81 from $75 and giving an incremental boost to its earnings expectations for the next two fiscal years. The firm reiterated a buy rating on the stock and is expecting earnings of $1.17 a share in the second quarter.
"We look for management to raise its FY 13 EPS guidance, currently $4.72-$4.92, when it reports on Thursday," S&P said. "Market share gains driven by price reductions and improved merchandise assortments will drive sales growth for the key back-to-school selling season, in our view. We also expect operating margin expansion from fixed expense leverage as WMT better manages labor costs."
Check out TheStreet's quote page for Wal-Mart Stores for year-to-date share performance, analyst ratings, earnings estimates and much more.
also reports on Thursday with Wall Street forecasting more red ink from the department store operator. The consensus is for a loss of 86 cents a share in the second quarter on revenue of $9.63 billion.
While the stock is still up more than 70% since the start of the year, it's down more than 8% in the past 12 months and has fallen substantially since hitting a high of $85.90 in mid-March as enthusiasm about the company's ability to monetize its real estate assets has waned.
The company is undoubtedly a work in progress, announcing plans for a partial spinoff of its Sears Canada business in May and following that up by unveiling a similar spinoff scheme for its Hometown, Outlet and hardware stores this week. Sears Canada reported weak results earlier on Wednesday, saying same-store sales fell 7.1% in the second quarter, so more ugly numbers may be on the way from the parent.
Other companies reporting early Thursday include
Dollar Tree Stores
Perry Ellis International
The late roster features
New York & Co.
Thursday's economic calendar includes weekly initial and continuing jobless claims at 8:30 a.m. ET; housing starts and building permits data for July at 8:30 a.m. ET; and the Philadelphia Fed regional manufacturing survey at 10 a.m. ET.
is already giving the Dow a headstart on a positive session. The stock was jumping more than 4% in late trades after the networker reported
and announced plans to boost its quarterly cash dividend by 75% to 14 cents a share from 8 cents.
was also a standout gainer after the bell, rising more than 5% after the storage and data management technology company
for its fiscal first quarter and gave a solid outlook.
Written by Michael Baron in New York.
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