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China Spooks Commodities Market and How to Play Target Earnings

by | Aug 15, 2022

We start this week’s Wall Street look ahead with a big surprise in global macro news: China CUT INTEREST RATES after reporting weak growth data. China’s growth made the world go ’round in the 21st century… So markets, especially commodities, got spooked.

That will be the big theme this week. Traders will focus on retail and earnings data in the U.S., and whether or not growth is slowing…

Wall Street Look Ahead: The Week’s Economic Numbers That Matter

Retail Sales (Wednesday, Aug. 17) — The new question that will dominate market discussions after inflation is whether or not we’re in a recession. Consumers so far have been resilient against price shocks, but a meaningful slowdown in retail sales would spook the bulls. 

The expectation is 0.1% month over month, which is flat. But it brings the potential for a negative reading to shock markets.

This number is NOT inflation adjusted, and we saw drawdowns in prices across the economy last month. So I’m leaning toward a negative surprise on retail sales. 

The big question is: Will the market view a month-over-month decrease as a sign of recession, or just prices sinking? I can say on the upside, the number wasn’t attributed to inflation…

Earnings I’m Watching This Week

Target Corp. (NYSE: TGT), Wednesday, Aug. 17 before the open: If retail sales weren’t enough, we also get more data from Target’s earnings numbers!

Target already warned that earnings would be squeezed in June, which was a major negative shock for the stock at the time. But TGT has rallied hard since, recouping much of the losses. 

After making a low of $137, TGT has rallied back to above $170 to start the week. I expect a big miss on earnings, even after liquidating inventories, could mean more trouble for the company as the slowdown expands. I wouldn’t be surprised to see the stock take a big hit and move back to the $140-$150 level.

A Target stock chart (Wall Street look ahead)

One of my best pairs trades this year was in TGT. In our Link Trades strategy, we were short TGT and long Dollar Tree Inc. (Nasdaq: DLTR) as part of a pairs trade, and we hit an 800%-plus return on the TGT put!

Remember to check your inbox on Friday for a recap of the week to see how my Wall Street look ahead played out! 

Jeff Zananiri
Joy of the Trade

P.S. A little-known stock has already outperformed the S&P 500 5-to-1 over the past 25 years…

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WRITTEN BY<br>Jeff Zananiri

Jeff Zananiri

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