Risk On Mode for Stocks
Stocks managed to break out of a tight range after weeks of sideways trading and ended higher. The S&P 500 gained 1.6%, closed at 4,192 and even traded above 4,200 for the first time since August. Nasdaq indexes outperformed on the back of solid returns for mega-cap technology stocks while the weakest sector was Utilities.
● This year’s rally in technology stocks was driven by robust balance sheets, predictable cash flows and strong Q1 earnings reports by mega-caps including Microsoft, Alphabet, Apple and Amazon (see table).
● Japanese equities reached a 33-year high driven by expectations of stronger governance standards, inflation finally accelerating and the economy showing signs of recovery. The Topix index rallied >14% YTD in ¥ terms, and 9% in $, in line with the average for developed indexes. 

● The US regional bank sector saw some relief last week after encouraging updates regarding deposit levels at a few banks that triggered a partial recovery. However, stocks fell on Friday after US Treasury Secretary Yellen said that the sector needed further consolidation and expected more mergers to take place. The KBW Regional Bank index recovered 6.2% on the week. 

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● Earnings Reports: Retailers
• Walmart (mcap $404bn, P/E 36x) beat sales ($152bn, +8% YoY) and earnings ($1.6bn, -18% YoY) estimates and raised its full-year guidance. Strong grocery sales, which account for 60% of revenues, offset weak demand for clothes and electronics, a sign of lower retail demand for discretionary items.
• Target (Discount retailer, mcap $70bn, P/E 26x) reported sales ($25bn, 0%) and profits ($950mn, -6%) in line with expectations and maintained its full-year outlook unchanged.
• Home Depot (Home improvement retailer, mcap $295bn, P/E 18x) missed revenue ($37.2bn, -4%) but beat earnings ($3.9bn, -7%) estimates. This was Home Depot’s worst sales miss in two decades and it lowered full-year revenue forecast. Falling lumber prices and poor weather conditions were the catalysts for the surprise.

