The Long Term Investor

Are we in a BEAR MARKET? Probably.........but.....who cares. I dont invest according to whether we are in a correction or a bear market or a recession......or....whether or not the moon is going to be full.

Beware of Bear Markets?

https://www.servowealth.com/blog/beware-of-bear-markets

(BOLD is my opinion OR what i consider important content)

"One of the best selling investment books of all time was written by Professor Jeremy Siegel, “Stocks For The Long Run.” For good reason—the long-term growth of stocks, and especially diversified portfolios, has been exceptional.

Live mutual fund data from Dimensional Fund Advisors on all corners of a global asset allocation is available going back to 1995. As the chart below shows, $1,000,000 invested in the Dimensional Equity Balanced Strategy in 1995 grew to $13,991,725 by April of this year—a +10.1%/yr return.

Imagine all of the future goals and aspirations that are possible if your savings can compound at even close to this rate of return over time?



But what was the cost of this appreciation? The growth was certainly impressive but there were a number of violent set backs along the way. If we look at the worst declines since 1995, we find there have been five different bear markets (-20% or greater loss) over this time period and approximately five other so-called ”corrections” (losses of -10% to -20%).

Based on this 27-year period, and confirmed by 90+ years of data on the S&P 500, in diversified stock portfolios we’d expect to see a decline of -10% or more about once every 2.5 years, and a -20%+ decline once every five years. Finally, a 50%+ decline looks like a once every 25-year occurrence.

The right way, then, to look at investing in stocks is this: for the price of a potential high long-term return, you have to put up with a considerable amount of short-term volatility and temporary losses.



So far you’re probably thinking to yourself, if I had a bunch of money that I could afford to set aside and not touch 27 years ago, or for the next 20-30 years, I should do fine. But what if I’m saving every month to achieve my retirement goals? Or what if I’m drawing a monthly paycheck from my portfolio? Won’t these temporary downturns seriously affect, if not completely ruin, my chances of success?

Most investors believe this to be true—that bear markets or sharp stock market declines are the biggest risk to your long-term financial wellbeing. Run into one and you’re screwed. Many financial advisors believe this as well (and are clamoring to sell you market-timing strategies to avoid the declines). The financial media also perpetuates the idea that a bear market is the beginning of the end of your chances to have a successful investment experience. Is the common view on bear markets correct?

Should You Keep Saving In a Bear Market?

To find out, I first looked at what would happen as an investor saving for retirement and having the extreme bad luck of starting in the first month of a bear market. Virtually everyone who is saving for the future and sees the market falling sharply wonders: Should I hold off and wait for things to get better? Will this decline devastate my savings? Surprising to many, the answer is no.

I looked at someone starting from scratch and saving (“dollar cost averaging”) $1,000 per month every month for a 10-year period ($120,000 total) into the DFA Equity Balanced Strategy beginning in the first month of each of the five bear markets listed above (May 1998, June 2002, November 2007, May 2011, and January 2020). What I found was that in each case they had much more money at the end of the 10-year period than they had saved, by a lot. In the first four bear markets, the average ending amount was $206,000–$86,000 more on average than was invested. In the shortened January 2020 to April 2022 period, the $28,000 saved had grown to $32,000.

The rate of return for the diversified stock portfolio over each of these periods was +8.5% per year, close to the +10.1% return over the entire period. So starting off at a bad time doesn’t guarantee you’ll experience a meaningfully lower return.

In fact, if you keep saving on a disciplined basis, you could do even better than average—the dollar weighted return for each of these 10-year periods, which includes the effect of when your money was invested, was +11.1% per year—2.6% per year on average better than the return on your funds or the return you would have received if you just invested one time at the start of the period and never invested again. The bear markets actually helped you get higher returns because some of your savings was invested at temporarily depressed prices and when the portfolio rebounded, you had an even better return on those dollars, improving the overall outcome.

So the evidence is clear—if you’re saving for retirement, don’t stop. Even if your portfolio is going down, keep going. Lower prices on your mutual funds and ETFs are like a huge sale allowing you to accumulate more shares at temporarily depressed prices, and staying disciplined could turn out to produce a return even higher than average or the time-weighted return on your investments.

Will a Bear Market Devastate Your Retirement?

To be fair, the conclusion above is the least controversial of my points in this article. It’s much more common to believe that a bear market will ruin your retirement. The overwhelming consensus is that you can absorb steep declines while you are still saving, but once you’re pulling money out of your portfolio, a bear market will put you on the fast track to run out of money.

If you’ve read previous blog articles I’ve written, you know this isn’t true. So let’s remind ourselves how and why.

Similar to the exercise above, I looked at what happened if you had retired in the first month of each of the five bear markets we’ve experienced (May 1998, June 2002, November 2007, May 2011, and January 2020), and kept going through April 2022. I assumed you started with $1,000,000 and wanted the standard $40,000 per year in retirement withdrawals, adjusted annually for inflation. The portfolio was again invested in the all-stock DFA Equity Balanced Strategy and excluded any bonds or cash to islotate the effect (or lack of) from a bear market. I also assumed you had hired a retirement income planner and paid the industry average of 1% per year for ongoing advice, investment management, and behavioral coaching.

If, net of withdrawals, the ending portfolio value in each of these situations had declined to far less than $1,000,000, or worse, been completely exhausted, we would conclude that the bear market had wiped you out. But by the same measure, if you still had your $1M, or had even more, we would have to conclude that the bear market had no lasting effect.

What did I find? The ending value of the portfolio in three of the first four bear markets was materially higher than the starting value and the average of all four ending amounts was $1,810,000. So on average, you almost doubled your principal even after withdrawing $40,000+ every single year. The fifth bear market, corresponding to the retirement that began in 2020, is also above the starting amount with a portfolio value of $1,110,000. Even the investor with the worst luck in a generation, who retired in November 2007, has still come out OK—their $1M is worth $878,000 through April ($963,000 through 2021) after almost 15 years of inflation adjusted withdrawals even though they started off with a -57% portfolio decline, the worst stock loss since the 1930s.

Lessons From Bear Markets?

What can we take away from this perspective on bear markets and their actual impact on long-term investors? I think the answers are obvious.



Bear markets and significant short-term setbacks are a natural part of investing in stocks. Because investors are almost universally risk averse, the volatile nature of stock prices is part of why we should expect high long-term returns. Simply put, without bear markets, there would be no stock return premium or potential for double-digit gains. When a bout of volatility hits, the only logical way to think about it is to say “this is what’s necessary for me to earn the returns I need to achieve my goals.”



Bear markets are not, as many think, something to constantly live in fear of, or worse, try to avoid. The reasons are two-fold. First, as this article shows, you don’t need to avoid them. You can likely achieve your long-term saving, spending, and legacy goals (assuming you have reasonable goals and a well-managed portfolio) even if you experience a bear market or a string of them. Second, no one knows how to time the market to be able to get out of stocks before they go down and then get back in before they go back up. Your best bet is to not even try.



I’m not saying you will ever learn to love bear markets. But hopefully having thought through them and their impact on your investment situation, you might come to believe they’re not worth paying as much attention to or worrying so much about. Maybe you’ll be able to live with them. And that’s all your financial plan and portfolio probably needs to achieve success."

MY COMMENT

YEP......no need to panic. In fact If you are actually a long term investor there is no need to do anything. That assumes that you are investing in a RATIONAL and REALISTIC fashion and not simply gambling on speculative stocks or funds.

What goes down.....eventually......goes back up. It is mostly about QUALITY........and.....not chasing HOT returns. In other words avoid.....GREED.

 

I have been siting and reading and IGNORING the market open today to let things settle in for a while. We are doing very nicely so far with ALL the averages positive.

Poor Bitcoin is still falling.......as is the Ten Year Yield. I dont own any Bitcoin other than a fraction of one Bitcoin just for fun. There is certainly no way I would even consider it an investment vehicle. It may be.....somewhat.....of a substitute for money.....but it is not an investment. It has no inherent value. I dont speculate in currency and I am not going to speculate in virtual currency.

 

I like this little article.......so true.

Worried About Stocks? Why Long-Term Investing Is Crucial

https://equiuspartners.com/worried-about-stocks-why-long-term-investing-is-crucial/

(BOLD is my opinion OR what I consider important content)

"We are living in a time of extreme uncertainty and the anxiety that comes along with it. Against the backdrop of war, humanitarian crisis, and economic hardship, it’s natural to wonder what effect these world events will have on our long-term investment performance.

While these challenges certainly warrant our attention and deep concern, they don’t have to be a reason to panic about markets when you’re focused on long-term investing.

Imagine it’s 25 years ago, 1997:

• J.K. Rowling just published the first Harry Potter book.
• General Motors is releasing the EV1, an electric car with a range of 60 miles.
• The internet is in its infancy, Y2K looms, and everyone is worried about the Russian financial crisis.

A stranger offers to tell you what’s going to happen over the course of the next 25 years. Here’s the big question: Would you invest in the stock market knowing the following events were going to happen? And could you stay invested?

• Asian contagion
• Russian default
• Tech collapse
• 9/11
• Stocks’ “lost decade”
• Great Recession
• Global pandemic
• Second Russian default

With everything I just mentioned, what would you have done? Gotten into the market? Gotten out? Increased your equity holdings? Decreased them?


Well, let’s look at what happened.

From January of 1997 to December of 2021, the US stock market returned, on average, 9.8% a year.1

A dollar invested at the beginning of the period would be worth about $10.25 at the end of the period.2

These returns are very much in line with what returns have been over the history of the stock market. How can that be? The market is doing its job. It’s science.

Investing in markets is uncertain. The role of markets is to price in that uncertainty. There were a lot of negative surprises over the past 25 years, but there were a lot of positive ones as well. The net result was a stock market return that seems very reasonable, even generous. It’s a tribute to human ingenuity that when negative forces pop up, people and companies respond and mobilize to get things back on track.

Human ingenuity created incredible innovations over the past 25 years. Plenty of things went wrong, but plenty of things went right. There’s always opportunity out there. Think about how different life is from the way it was in 1999: the way we work, the way we communicate, the way we live. For example, the gross domestic product of the US in 1997 was $8.6 trillion and grew to $23 trillion in 2021. (Read more about the merits of investing in innovation.)

I am an eternal optimist, because I believe in people. I have an unshakable faith in human beings’ ability to deal with tough times. In 1997, few would have forecast a nearly 10% average return for the stock market. But that remarkable return was available to anyone who could open an investment account, buy a broad-market portfolio, and let the market do its job.

Investing in the stock market is always uncertain. Uncertainty never goes away. If it did, there wouldn’t be a stock market. It’s because of uncertainty that we have a positive premium when investing in stocks vs. relatively riskless assets. In my opinion, reaping the benefits of the stock market requires being a long-term investor.

By investing in a market portfolio, you’re not trying to figure out which stocks are going to thrive, and which aren’t going to be able to recover. You’re betting on human ingenuity to solve problems.

The pandemic was a big blow to the economy. But people, companies and markets adapt. That’s my worldview. Whatever the next blow we face, I have faith that we will meet the challenge in ways we can’t forecast.

I would never try to predict what might happen in the next 25 years. But I do believe the best investment strategy going forward is to keep in mind the lesson learned from that stranger back in 1997: Don’t panic. Invest for the long term."

MY COMMENT

I guess to be an investor you have to have FAITH in business and the human managers and workers in business to achieve in spite of external events.

If you had a crystal ball that would give you advance warning of all the events that are going to happen most people would probably NEVER invest. They would be overwhelmed by all the negative events and time periods that were going to happen.

I mentioned FAITH in the first sentence......but.....it is more than faith. A good investor gets courage from the data and academic research that shows the power of long term investing.......in spite of.....all the negative events along the way. It is a question of PROBABILITY........and......having the guts to expose your money to the markets in order to achieve those......PROBABLE.....returns.

 

Talking about negative events.......one of the most feared is.......GASP.......STAGFLATION.

Why? I dont know.

All it means is a time period of stagnant economy and inflation. It can be mild or it can be severe. I have not seen Stagflation in my lifetime since the late 1970's and early 1980's. At that point it was pretty severe. That does not mean it will always be severe.....if it happens. It is NOT the BOGEYMAN under the bed. It is simply a short term economic condition.

 

Here is what is going on today.....in the short term financial world.

Stock market news live updates: Stocks advance as market attempts rebound from sell-off

https://finance.yahoo.com/news/stock-market-news-live-updates-may-26-2022-112511143.html

(BOLD is my opinion OR what I consider important content)

"U.S. stocks rose Thursday morning as markets remain on track to snap a 7-week losing streak.

The S&P 500 climbed as much as 1.3% in early trading, and the Dow Jones Industrial Average gained over 400 points, or 1.2%. The Nasdaq Composite rose 1.3% higher as the index attempts to claw its way out of bear market territory.

A rebound in retail earnings spurred markets early in the session, with Macy's (M) rising as much as 12% in early trading after the retail giant raised its profit outlook in an upside surprise to investors weighing a slew of downward forecast revisions from peers. Shares of discount retailers Dollar Tree (DLTR) and Dollar General (DG) were also up more than 13% after both companies raised forecasts on Thursday.

Last week, several retailers, including Walmart Inc. (WMT), have recently slashed their outlooks and warned inflation was likely to weigh on profits.

The moves build on a brief reprieve for equities, which closed higher Wednesday amid a streak of day-to day gyrations. In the first 99 trading days of the year as of Wednesday's close, the S&P 500 was down 17.3%, marking its fourth worst start to a year in history, per data from Compound Capital Advisors.

Investors also digested a bevy of economic releases Thursday morning, including a revised estimate on U.S. GDP that showed economic activity fell at a 1.5% annualized rate in the first three months of 2022, upwardly revised from an initial estimate of 1.4%. Bloomberg economists had anticipated the second reading to come in at 1.3%. Meanwhile, applications for unemployment insurance ticked back down in the latest weekly data to 210,000 in the week ended May 21.

Chip designer Nvidia Corp. (NVDA) joined the growing list of companies reporting weaker second-quarter forecasts and alluding to economic constraints ahead. The company's stock fell in extended trading Wednesday after Nvidia warned current-quarter revenue was likely to come in $500 million lower due to headwinds from Russia’s war in Ukraine and COVID lockdowns in China. Nvidia shares pared these losses early Thursday, rising 0.6% about a half hour into the trading session.

Software company Snowflake (SNOW) also cut its forecast late Wednesday, and shares of the company were down as much as 10% in early trading on Thursday.
Recent trading sessions have seen sharp drawdowns in some big-name stocks after earnings reports that affirmed investor worries about the impact of inflation on corporate margins. Earlier this week social media giant Snap Inc. (SNAP) tumbled 43% in its biggest-one day drop on record, spurring a sell-off of other digital ad-dependent stocks that dragged the Nasdaq down to its lowest close since November 2020.

Last week, the downswing occurred in retail after Walmart and Target (TGT) set off the recent trend of dramatic pullbacks in individual names following weaker earnings forecasts. According to data from FactSet, S&P 500 companies reporting results for the first quarter have seen the largest negative price reaction to positive earnings per share surprises since 2011.

“Whether it’s today or tomorrow, it does feel like we’re starting to digest what is a seemingly large amount of bad news,” Acorns Chief Investment Officer Seth Wunder told Yahoo Finance Live on Wednesday. “The key thing is to get data that eases some of the pressure off of the Federal Reserve.”

The pickup in disappointing guidance has kept Wall Street on edge for signs the central bank’s interest rate hiking plans will be effective in bringing prices back down to healthier levels. Minutes released Wednesday from the Fed’s May policy-setting meeting indicated the majority of officials were strongly committed to rate hikes of 50 basis points at each of the next two meetings in June and July. So far this year, policymakers bumped short-term borrowing costs by 50 basis points earlier this month and 25 basis points in April.

“Though market participants have feared this stance, it should be noted that the Fed has in excess of $100 billion is securities maturing on its balance sheet coming up, so the resulting asset purchases can help negate growth concerns this summer,” Comerica Wealth Management Chief Investment Officer John Lynch said in an emailed note. “It’s actually a perfect time for the Fed to raise aggressively and send a message to markets that they’re serious about inflation without sending growth into a tailspin.”

9:07 a.m. ET: US GDP contracted at slightly faster rate in the first quarter

U.S. gross domestic product fell at a 1.5% annualized rate in the first three months of 2022, according to a revised estimate out of Washington.

The nation’s GDP – the broadest measure of economic activity – was initially believed to logged a 1.4% contraction between January and March. The second reading came in higher than the revised contraction of 1.3% Bloomberg economists had anticipated.

In the fourth quarter, economy grew at a robust 6.9% pace. The slowdown comes amid lingering supply chain imbalances, inflation, and disruptions from war in Eastern Europe that weighed on growth.

8:58 a.m. ET: US jobless claims fall after climbing unexpectedly last week

Applications for unemployment insurance ticked back down in the latest weekly data, underscoring continued strength in the labor market despite higher inflation and worries of an economic slowdown.

The Labor Department's latest weekly jobless claims report showed 210,000 claims were filed in the week ended May 21, coming in below the 215,000 economists surveyed by Bloomberg had expected. Last week, filings unexpectedly climbed to 218,000, the highest level since January.

Weekly claims continued to hover near a multi-decade low. However, several retailers, including Walmart Inc. (WMT), have recently slashed their outlooks and warned inflation was likely to weigh on profits, raising concerns among market participants that layoffs could be underway.

"Major retailers are reporting margin pressure and softer consumer demand as inflation erodes discretionary spending power and consumers redirect spending dollars from goods to services," Comerica Chief Economist Bill Adams said in a recent note. "This will lead to slower job growth in the retail and e-commerce industries in the rest of 2022."

"The stock market selloff could dampen business sentiment and make some businesses more cautious about hiring, especially businesses that are cash flow negative and rely on investors’ money to fund operations like many startups," he added."

MY COMMENT

Hey! Do you remember the pandemic?

Yeah everyone seems to have moved on......at least in my world. BUT......the economy is STILL very screwed up by all the INSANE STUFF that was done during Covid. The labor and employment markets are STILL very distorted. Supply chains are STILL totally broken.......and......in spite of government.......will continue to be broken for at least another 6-12 months minimum. The entire economy.....especially small business....is STILL broken and struggling to recover.

BUT......considering all that we.......STUPIDLY, in hindsight......did to the economy, we are actually doing pretty well. It is a struggle for business....BUT.....we are on the way to recovery. It just takes TIME. We are not there yet and have perhaps 6-18 months to get back to NORMAL. We will get there.......it is just a process that takes TIME.

 

IT'S A RALLY.......

 

WELCOME.....Smokie. You made some good comments. Please keep posting your opinions and investing experiences.

 

A banner day for me today. I was BIG GREEN. I also made back a little bit of my year to date deficit by beating the SP500 today by 1.45%.

EVERY position was strongly in the green today. We need to carry this momentum to the close tomorrow. We also need to lock in a RARE positive week tomorrow. Seems like pretty good odds.........but......you never know, we could see some sellers taking advantage of this little bump up to bail out of the markets.

 

Here is the.........GASP.......good news so far this week.

Dow rises for a fifth straight day, S&P 500 and Nasdaq on pace to snap 7-week losing streaks

https://www.cnbc.com/2022/05/25/stock-market-news-futures-open-to-close.html

(BOLD is my opinion OR what I consider important content)

"Stocks rose Thursday, putting Wall Street on track to break a long string of weekly declines.

The Dow rose for the fifth trading day in a row, adding 516.91 points, or 1.6%, to close at 32,637.19. The S&P 500 climbed about 2% to 4,057.84. The Nasdaq Composite advanced nearly 2.7% to 11,740.65, helped by a surge in Dollar Tree shares. The tech-focused index was the outperformer, after trailing the other averages earlier in the day.

The Dow has fallen the last eight weeks, while the S&P 500 and Nasdaq are riding seven-week losing streaks. The market seems to have somewhat regained its footing this week, however, as investors hope to see a peak in inflation and seek value at these levels.

The Dow and S&P 500 are up 4.4% and 4%, respectively, for the week. The Nasdaq is up 3.4%.

“Although this was an expected, and highly talked about potential ‘oversold’ rally, the underpinning for today’s market climb higher, suggests that last week’s doom and gloom about the all-important U.S. consumer may have been overdone, along with the dire recession headlines,” said Quincy Krosby, chief equity strategist for LPL Financial.

“To be sure, the data releases this week suggest the economy is slowing, and the Fed appears poised to raise rates at a 50 basic point clip over the next two months,” she added. “But the notion that the consumer, 70 percent of the U.S. economy, is on a spending strike, is overblown as earnings reports coupled with positive guidance indicate otherwise.”

Some remained distrustful of the rally as stocks have been on a persistent downward trend since the start of year, despite the relief bounces sprinkled throughout. Zachary Hill, head of portfolio strategy at Horizon Investments, told CNBC it’s too early to shift focus from inflation to growth.




CNBC

“We view this week’s rally in equity markets as technical in nature and not a change in the overall trend,” he said. “Tighter financial conditions suppressing demand in the real economy remain the channel through which the Fed hopes to cool inflation. Until that changes, rallies like we are seeing in equity markets this week, while somewhat expected after almost two months of relentless declines, are likely to be short-lived.”

Shares moving on earnings

Stocks pushed higher after strong earnings from the retail sector gave a boost to investor sentiment. Macy’s shares surged 19.3% after the company raised its 2022 profit outlook, and Williams-Sonoma rose 13% after beating estimates on the top and bottom lines.

Discount retailer Dollar Tree jumped about 21.9% after posting an earnings beat, which helped push the Nasdaq higher. Dollar General also reported strong earnings, adding 13.7% to its shares. The SPDR S&P Retail ETF gained more than 4%. Investors are looking forward to Costco’s quarterly results, which it will report after the bell.

Shares of chipmaker Nvidia bounced after falling on weaker-than-expected guidance for the second quarter and a warning of a slowdown in hiring. Shares reversed and climbed 5.1% after a slew of analysts reiterated their buy ratings on the shares and highlighted momentum in the company’s data center business.

A “glimmer of the return of deals” also helped lift investor sentiment, Krosby said. Specifically, chipmaker Broadcom announced plans to buy cloud company VMware in a $61 billion deal, which would be one of the biggest tech acquisitions of all time. Broadcom shares added about 3.6%, and VMWare rose nearly 3.2%.

″[It] suggests that value is being created as the market re-calibrates its valuation while the Federal Reserve raises interest rates and begins the taper of its balance sheet,” Krosby said.

Elsewhere, Twitter shares jumped 6.3% after Elon Musk increased his commitment in his takeover bid to $33.5 billion, which analysts have said indicates a new seriousness and increased probability that he’ll complete the deal.

On the flipside, software stock Snowflake pared steeper losses but was down 4.5% after the company’s guidance for operating margin came in narrower than expected.

First-quarter gross domestic product declined at a 1.5% annual pace, worse than the 1.3% Dow Jones estimate and a writedown from the initially reported 1.4%, the Commerce Department reported Thursday.

Initial jobless claims for the week ended May 21 totaled 210,000, a decrease from the previous week’s level of 218,000."

MY COMMENT

YES......same old same old issues day after day. Nothing new for the past 6 months. All that changes is the day to day perception.

Today was certainly a strong day and we are in line for a positive week. BUT.......this follows many, many negative weeks since January 1.

Is the market drop over? Probably not.....but....who knows. We "might" look back in a year and see that this time period was the start of a recovery. Am I calling a recovery.....NO. I think there is a "possibility" of another 15% or more drop in the markets as the year progresses. Of course.......it is impossible to know where things are headed over the short term.

So far I see the FED as having achieved NOTHING in their inflation battle.....other than freaking out the stock markets and some investors.

In any event......it is nice to actually make some nice money for a change.

 

Good old Costco......one of my ICONIC long term holdings......my hero.

Costco beats quarterly revenue estimates on strong consumer spending

https://finance.yahoo.com/news/costco-beats-quarterly-revenue-estimates-202027744.html

(BOLD is my opinion OR what I consider important content)

"(Reuters) - Costco Wholesale Corp beat Wall Street estimates for quarterly revenue on Thursday, boosted by strong consumer spending on its fresh food, home furnishings and fuel offerings amid surging inflation.

An average shopper at Costco makes more than a typical Walmart and Target customer, and the warehouse club operator's efforts to keep gas prices several cents below the national average has driven memberships.

The company's revenue from memberships, which are priced between $60 and $120 per year, rose to $984 million in the quarter from $901 million a year earlier.

Its results come at a time when Walmart posted a fall in revenue due to the impact of decades-high inflation hitting consumer spending.

The membership-only retail chain's total revenue rose to $52.60 billion in the third quarter, from $45.28 billion a year earlier, beating analysts' estimates of $51.71 billion, according to IBES data from Refinitiv.

However, shares of the warehouse club operator fell about 2% in extended trading."

MY COMMENT

OF COURSE........shares fell in extended trading......why not?

This is a HUGE earnings BEAT and a repudiation of the retail consumer story line that has been spun over the past few days as a result of the Walmart and Target earnings misses. This shows the strength of the consumer economy.......when looked at from the stand point of a very well run company that knows how to sell itself and it's product line.

 

This little article says a lot about how Costco does business. They are a very well managed and smart company. Notice that they spend......NOTHING.......on advertising. They cater to the SUBURBAN moms and SUBURBAN America........the GUTS of the economy. The Asian and Indian populations in SUBURBIA are skyrocketing and Costco is right there. They are also catering to the HUGE growing Hispanic middle class.

A lot of Costco love’ — How the warehouse retailer became a staple of Asian America

https://www.cnbc.com/2022/05/26/how-costco-became-a-staple-of-asian-america.html

(BOLD is my opinion OR what I consider important content)

"Key Points

• Asians comprise about 7% of the U.S. population, but make up 11.9% of Costco shoppers, according to market research firm Numerator.
• Asian Americans are the fastest-growing demographic in the U.S.
• The untapped sales potential of Asian American consumers tallies to $13 billion, according to NielsenIQ.

Wendy Leung rarely saw durian in grocery stores growing up in Los Angeles, but the 45-year-old nonprofit worker found the fruit at her local Costco Wholesale in San Fernando Valley this April. Durian is used in Southeast Asian cuisines and is known for its strong scent.

“When I saw it in Costco, it just made me laugh that durian has gone mainstream,” said Leung, who was born in Hong Kong. “I’ve definitely been noticing more Asian products at Costco lately.”

Asian Americans are the fastest-growing demographic in the U.S. They’re also a disproportionate number of Costco’s customers. Asians comprise about 7% of the U.S. population, but make up 11.9% of Costco shoppers, according to market research firm Numerator.

Costco’s dominance among Asian American consumers bodes well for the warehouse retailer’s longer-term growth trajectory — and carries implications for other retailers as the industry evolves alongside a diversifying United States.

“There’s opportunity to take what were once held as niche or minority markets and put them central to U.S. trends,” said Kymberly Graham, head of diversity initiatives at consumer intelligence firm NielsenIQ.

“For Asian Americans, their rate of population acceleration certainly lends to this idea that ... they’re going to be creating major market shifts. If their needs are being served, it inherently becomes very profitable for anyone that’s serving them,” Graham said.

A $13 billion opportunity

The rapid growth and purchasing power of Asian Americans make the group a formidable consumer base for retailers. The Asian population in the U.S. jumped 81% from 2000 to 2019, compared with the overall population’s 16% growth, according to the Pew Research Center. Asian Americans have the highest median household income in the U.S. — though the demographic also has the greatest intragroup economic disparity in the country.

The untapped sales potential of Asian American consumers tallies to $13 billion, according to NielsenIQ.

On average, Asian Americans exhibit some shopping habits that differ from those of other consumers, NielsenIQ found. Households of Asian descent tend to be larger than those of the overall U.S. population. Asian Americans are more likely to buy in bulk and seek bargains. As a result, Asian consumers are more than twice as likely to shop at warehouse clubs than the average U.S. consumer.

Costco declined to comment directly on inventory and consumer strategy as it relates to Asian shoppers. “Regardless of the products we sell, Costco’s buying philosophy is the same: Research the marketplace, determine the variety of products our members are interested in, and negotiate an exceptional value on quality products and services,” Costco management told CNBC in an email.

The warehouse retailer famously does not spend any money on advertising, but word of mouth can cultivate brand affinity among different communities, said Marshal Cohen, chief industry analyst for market research firm NPD Group.

“Every once in a very blue moon would you hear about a major retailer focused in on the Asian community,” Cohen said. “Word of mouth and the influence of the community spreads, and that’s what helps elevate a business. So if a business like a Costco caters to the Asian community, they share that out and that multiplies out.”

Cindy Zhou, 50, first heard about Costco from a friend who is also an immigrant from China. Zhou became a Costco member around 2013 and now shops weekly for food, household products and gas at her local warehouse in greater Cleveland.

“Almost all my friends have Costco memberships,” said Zhou, who works in information technology. “I like Costco because they have very good quality at a much lower price than other grocery stores.”

Zhou and other Costco shoppers noted their local stores have added specialty Asian items such as boba ice cream bars, lap cheong and oyster sauce to their rotating inventory in recent years. She recalled seeing displays for Chinese holidays Mid Autumn Festival and Lunar New Year at Costco in the past year. Leung’s warehouse in California sells poke bowls.

Asian American consumers can find food products of their diaspora at local ethnic grocers and Asian supermarket chains such as H Mart, 99 Ranch Market and Patel Brothers. But seeing those products at one of the largest retailers in the world is rare.

With a market value of $185 billion, Costco reported $195.93 billion in total revenue in 2021, up more than 17% from the prior year. The company is scheduled to report its latest results after the market closes Thursday. Its shares are down more than 20% so far this year.

Zhou said when she or a friend spots an Asian product at Costco that they would normally see only at an ethnic store, they tell others about it in group chats on Chinese messaging app WeChat.

‘A lot of Costco love’

Jing Gao, founder of hot sauce brand Fly By Jing, is a big Costco fan as a consumer, so when she got the opportunity to pitch to Costco buyers, she jumped at the chance.

“I’m obsessed with Costco. I go any chance I get,” Gao said. “There’s just something great about discovery ... not knowing what deals you’re going to find.”

Fly By Jing started as an online-only direct-to-consumer business before expanding to retailers such as Whole Foods, Target and now Costco. The brand launched its Sichuan chili crisp product in Costco stores in the Los Angeles and Hawaii region in February. Just months later, Fly By Jing has already expanded to, or is in the process of entering, the Northeast, Bay Area, Pacific Northwest, San Diego and Texas markets. The company plans to roll out its Zhong dumpling sauce at Costco as well, starting in LA later this year.

An Instagram video announcing the Costco launch has become Fly By Jing’s highest performing post on the social media platform. The video currently has roughly 85,000 views, almost 7,000 likes and nearly 600 comments.

“Clearly there’s a lot of Costco love,” Gao said.

One customer who bought Fly By Jing at Costco is Leung.

“I would give kudos to Costco for thinking about what young people want, what’s in,” Leung said. “You start developing a loyalty.”"

MY COMMENT

This is how you create a successful business. They have a plan and they stick with it. This company......at least so far.....never takes their eye off the ball. Just the information in this little article is a TEXT BOOK PRIMER on how to create a successful business. This is exactly the type of company that I want to put my money into.

I was lucky to discover Costco when they were in their very early days in the Seattle area. We have been members for over 35 years. We dont shop there that often anymore.....but every time I go into one of their stores it is an amazing experience to see their business model in action. The customers love Costco.

 

Well......us Amazon shareholders will soon have way more shares. The split was approved by the shareholders and the new price will be traded on June 6. The approval was never in doubt. Perhaps this will spark a bit of a rally for the stock.....it could use it.

Amazon shareholders approve 20:1 stock split, vote down record 15 proposals at annual meeting

https://www.geekwire.com/2022/amazo...e-down-record-15-proposals-at-annual-meeting/

 

A good start today with stocks up and the Ten Year yield down. A good combination for stocks and investors.

We will get some clue where the day might end up when we get to about 11:00 to 12:00 East coast time. That is when the typical mid morning drop happens.

 

I like this little article as an indicator as to how we might end the day today. A psitive short term indicator.....but....not particularly relevant to the long term.

US Consumer Spending Holds Up as Households Dip Into Savings

https://finance.yahoo.com/news/firmer-us-inflation-adjusted-spending-124243844.html

(BOLD is my opinion OR what I consider important content)

"(Bloomberg) -- US inflation-adjusted consumer spending rose in April by the most in three months, indicating households were holding up in the face of persistent price pressures by dipping into savings.

Purchases of goods and services, adjusted for changes in prices, increased 0.7% from March, Commerce Department data showed Friday. Both goods and services spending advanced in April.

The personal consumption expenditures price index, which the Federal Reserve uses for its inflation target, rose 0.2% from a month earlier and was up 6.3% from April 2021. The core PCE price index climbed 0.3% for a third month.

The median forecasts in a Bloomberg survey of economists called for a 0.7% increase in inflation-adjusted spending from the prior month and a 6.2% rise in the price index from April 2021.

Unadjusted for inflation, spending rose 0.9% from the prior month, while personal income climbed 0.4%.

The figures underscore forecasts for spending to stay healthy during the second quarter as consumers remain backstopped by solid job growth and accumulated savings. The deceleration in inflation during the month partly reflected a drop in gasoline prices.

While annual inflation is cooling, it remains three times higher than the Fed’s 2% target and helps explain why policy makers are seen pressing on with half-point hikes in interest rates in coming meetings.

Household purchases are nonetheless at risk of moderating as gas prices are now back at record highs and grocery bills take a bigger toll on budgets. The strain was evident in a drop in the April savings rate to the lowest level since 2008, as well as a pickup in consumer borrowing.

“Having a steady paycheck is key and the still-tight job market assures that support,” said Jennifer Lee, senior economist at BMO Capital Markets. “But high inflation is eating away at what one can buy, hence, the saving rate was drawn down for the fourth straight month.”

Core Inflation

In addition to the headline inflation figure, the core PCE price index, which excludes food and energy and is often seen as a more reliable guide to underlying inflation, increased 4.9% from a year earlier, compared with 5.2% in March.

Inflation-adjusted spending on goods 1% from the prior month, led by motor vehicles, while services increased 0.5%. Not adjusted for inflation, the gain in services spending in April was led by components including food services, accommodation and housing, according to the Commerce Department.

Wages and salaries increased 0.6% last month. When adjusted for inflation, however, disposable personal income was unchanged. The personal saving rate -- or personal saving as a share of disposable income -- fell to 4.4% from 5%."

MY COMMENT

All in all a very positive report. Consumers are STILL active and spending. I dont know if they are using savings.....but if they are......it is FREE MONEY that was saved over the last year or so. PLUS.......inflation is down.

It is no shock that inflation was down much lower than what was expected. As we move forward the months that we are comparing to will impact the data to the down side.

The 2% inflation target that is mentioned is TOTALLY UNREALISTIC. This is much lower than the historic range that is NORMAL for inflation. Back in the old days.....we used to hear that we needed 3-4% inflation for a healthy economy. We are going to push ourselves further into DEFLATION......if.....we continue to push for 2% as a realistic level for inflation.

The bottom line......no one has a clue. The short term markets are LURCHING AROUND......one day the consumer is dead as shown by Walmart and Target earnings.....the next day consumers are spending.

Bottom line......ignore the short term chaff.

 

The current market is the perfect time for people to evaluate what they really are.

I imagine Clint Eastwood standing over someone on the ground, with a .44 Magnum, saying........"The question is, are you an investor or a trader"?

In the end that is the KEY question. Of course many people that think they are investors......act like traders. There is nothing wrong with being a trader if that is what you are. There is a lot wrong with acting like a trader when you are an investor.....or.....think you are an investor.

 

Here is what is going on today for the short term.

Stock market news live updates: Stocks rise, S&P 500 looks to snap 7-week losing streak

https://finance.yahoo.com/news/stock-market-news-live-updates-may-27-2022-112320787.html

(BOLD is my opinion OR what I consider important content)

"U.S. stocks rose on Friday, setting the major indexes on track to end a weeks-long losing streak after a string of more upbeat corporate results at least temporarily offset fears of a steep economic slide.

The S&P 500 gained. The blue-chip index headed for a 4% weekly advance as of Thursday's close, which if maintained, would mark its largest since mid-March. The S&P 500 had fallen for the seven consecutive weeks prior in its longest losing streak since 2000. The Dow Jones Industrial Average and Nasdaq each also increased on Friday.

Investors digested a fresh set of economic data Friday morning, including the latest print on core personal consumption expenditures (PCE) — the Federal Reserve's preferred gauge of underlying inflation. These showed inflationary pressures eased only modestly in April compared to March, echoing results from the still-elevated Consumer Price Index and Producer Price Index released from earlier this month. Headline PCE increased 6.3% in April over last year compared to March's 6.6% increase, and core PCE rose by 4.9% compared to 5.2% in the prior month. But separate data also showed personal spending, adjusted for inflation, accelerated in April compared to March.

Over the past several sessions, investors have weighed favorably the most recent batch of quarterly results and guidance from retailers like Macy's (M), Nordstrom (JWN), Dollar General (DG) and Dollar Tree (DLTR). These companies largely exceeded Wall Street's estimates, helping assuage concerns that the profit pressures reported recently by Walmart (WMT), Target (TGT) and Kohl's (KSS) were reverberating equally across all consumer-facing firms. And outside of retail, airlines including JetBlue (JBLU) and Southwest (LUV) raised their sales guidance for the current quarter, suggesting demand remained strong for discretionary travel.

“Overall the U.S. consumer still remains in great shape. They came into these price hikes, this inflation, with cushion on their balance sheet. Certainly employment is high, so the overall U.S. consumer remains in a very strong place," Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management, told Yahoo Finance Live.

"The big fear was that inflation was going to continue to run away and cause the Fed to have to tighten the U.S. economy into a recession," he added. "I think we’re all starting to gradually wake up to the reality that goods spending ... was pulled forward. Inventories have been rebuilt, and goods spending has caused the inflation that you’re seeing. That’s going to roll over as people move over to service sector spending."

"And so it may feel like a recession in some parts of the economy, but other parts of the economy are going to do well," Schutte said. "Inflation is going to fall, and the Fed is going to go a bit easier."

However, other strategists cast doubt on the staying power of gains seen in the market so far this week, especially as inflation has shown few meaningful signs of coming down in a substantial way to date.

"This is nothing more than a bear bounce in our opinion. When you look at these bounces we’ve had, they’ve been on very light volume, there's not a lot of conviction," Eddie Ghabour, co-founder and managing partner of Key Advisors Group, told Yahoo Finance Live. "The data that we’re getting now that’s been causing this sell-off, remember, is first-quarter data. The data coming in the second quarter is going to be worse than the first quarter. And we’re not going to get that news until July ... So I think we’re going to have a very treacherous market in the next few months.”

10:06 a.m. ET: Consumer sentiment weakened in late May to lowest since 2011

Consumer sentiment fell further in late May, largely on account of concerns around inflation and business conditions in the near-term.

The University of Michigan's final monthly sentiment index decreased to 58.4, which was downwardly revised from the 59.1 previously reported for the month. Subindices tracking consumers' views on current conditions and future expectations were each also slightly downwardly revised, and one-year inflation expectations were little changed at 5.3%.

The latest sentiment drop "was largely driven by continued negative views on current buying conditions for houses and durables, as well as consumers’ future outlook for the economy, primarily due to concerns over inflation," Joanne Hsu, Surveys of Consumers director, wrote in a statement. "At the same time, consumers expressed less pessimism over future prospects for their personal finances than over future business conditions."

"Looking into the long term, a majority of consumers expected their financial situation to improve over the next five years; this share is essentially unchanged during 2022," Hsu added. "A stable outlook for personal finances may currently support consumer spending. Still, persistently negative views of the economy may come to dominate personal factors in influencing consumer behavior in the future."

8:58 a.m. ET: Goods trade deficit narrows more than expected in April after record reading in March

The U.S. goods trade gap declined more than anticipated in April after reaching an all-time high of nearly $126 billion in March.

The advance goods trade balance showed a deficit of $105.9 for the U.S. in April, the Commerce Department said Friday. This followed a gap of $125.9 billion in March, which was upwardly revised from $125.3 billion last month.

The print suggests trade produced slightly less of a drag on the U.S. economy at the start of the second quarter compared to the first. In the first quarter, net exports shaved 3.23 percentage points off headline U.S. gross domestic product (GDP). GDP fell at a 1.5% annualized rate in the first three months of the year.

8:42 a.m. ET: Real personal spending accelerates in April, while saving rate slides to lowest since 2008

U.S. consumers kept spending last month even as inflation remained elevated, as one of the key contributors to U.S. economic activity held up into the spring. However, the personal saving rate dwindled to the lowest level in over a decade, raising some concerns over how much longer spending might manage to prop up the economy.

Real personal spending rose 0.7% month-on-month in April, the Bureau of Economic said Friday, accelerated from March's 0.2% rise. Unadjusted for inflation, personal spending was up 0.9%, exceeding consensus economist expectations for a 0.8% increase, according to Bloomberg data. This metric had risen by 1.1% in March.

Personal income, however, decelerated slightly last month, rising 0.4% after March's 0.5% increase. And the personal saving rate, or proportion of disposable personal income set aside to savings, fell to 4.4% from March's 5.0%, reaching the lowest level since 2008. After soaring during the pandemic, the saving rate has now come in well below the average of 2019 before the outbreak, when the saving rate had averaged over 7%.

8:38 a.m. ET: Inflation eases just slightly in April as PCE rises 6.3% year-over-year

Inflation as measured by the Bureau of Economic Analysis' personal consumption expenditures (PCE) index eased only modestly in April compared to March, with fast-rising prices showing few signs of slowing down across the U.S. economy.

The broadest measure of PCE rose 0.2% in April month-on-month, which matched consensus economist expectations, according to Bloomberg data. This compared to a 0.9% monthly increase in March. On a year-over-year basis, however, PCE still soared by 6.3%, coming in slightly hotter than expected and moderating only slightly from March's 6.6% annual rise.

Core PCE, which excludes volatile food and energy prices, also remained hot and rose 4.9% in April over last year. That matched estimates, and followed a 5.2% rise in March. February's reading of 5.3% had been the highest since 1983."

MY COMMENT

There is much positive in the above data. Although.......it is all about the spin. You can cay.....inflation eased...."only moderately" OR.....you can say.....inflation eased....."moderately". BOTH are exactly the same and based on the same data. One is negative......one is positive.

This is why you have to be very careful how you take anything you see in the financial media. That one little word is simply the writers opinion......not fact. The FACT is that inflation eased moderately.

As to Consumer Sentiment. The most worthless piece of data there is. This is the most hindsight measure of any piece of economic data. It is totally meaningless. It is also nothing more than a reflection of what is being pumped out in the media at the moment. I dont invest or make investment decisions based on this short term data.....especially.....this particular meaningless measure. It is simply people REGURGITATING what they have been hearing in the media and is totally inaccurate as to what will happen in the future or in the economy.

 

I have my Handyman coming soon, in about a half hour. Going to change out a few door levers. I STILL have a few lingering odds and ends to my list of house projects that I did this year. I also have a couple of plumbing fixture installs next week.

I was able to complete about 98% of my projects but the last lingering items that I will complete over the next week were caused by items being back-ordered. In other words......supply chain issues.

The door levers and final plumbing parts that I needed took about 6 months to get here. AT LAST......we will be 100% done after next Tuesday.