The Long Term Investor

Retail sales and Target earnings are holding the markets down today.

Gasoline price drop weighs on U.S. retail sales; consumer spending resilient

https://finance.yahoo.com/news/u-retail-sales-flat-july-124630947.html

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

"WASHINGTON (Reuters) -U.S. retail sales were unexpectedly unchanged in July as falling gasoline prices weighed on receipts at service stations, but consumer spending appeared to be holding up, further assuaging fears the economy was in recession.

Declining gasoline prices, however, freed up money for spending on other goods including furniture, electronics and appliances as well as building materials and garden equipment. Combined with strong wage gains from a tight labor market and ample savings, that should help to underpin consumer spending in the months ahead.

The mixed report from the Commerce Department on Wednesday is unlikely to sway the Federal Reserve from its aggressive monetary policy tightening path.

"The U.S. economy is not currently in recession," said Cliff Hodge, chief investment officer at Cornerstone Wealth in Charlotte, North Carolina. "Consumers remain resilient in the face of sticky inflation."

Last month's flat reading in retail sales followed a downwardly revised 0.8% increase in June. Retail sales in June were previously reported to have advanced 1.0%.

Economists polled by Reuters had forecast that sales would gain 0.1%, with estimates ranging from as low as a 0.3% decline to as high as a 0.9% increase.

Retail sales are mostly goods and are not adjusted for inflation. They rose 10.3% on a year-on-year basis in July.

Monthly consumer prices were unchanged in July as gasoline prices retreated from record highs, lowering the annual rate of increase in inflation to 8.5% from 9.1% in June.

The national average gasoline price dropped to about $4.27 per gallon in the last week of July after hitting an all-time high just above $5.00 in mid-June, according to data from motorist advocacy group AAA. Prices at the pump were averaging $3.943 per gallon on Wednesday.

Sales at service stations dropped 1.8% last month, while receipts at auto dealerships declined 1.6%. Excluding gasoline and motor vehicles, retail sales rose 0.7%.

There were also decreases in sales at clothing and general merchandise stores, which could reflect deep discounts as retailers try to clear excess inventory. Walmart said on Tuesday that the retail bellwether had cleared most of its summer seasonal inventory, but still had work to do in reducing its stock of electronics, home goods and apparel.

STRONG ONLINE SALES

Online and mail-order retail sales jumped 2.7% in July. Receipts at furniture stores gained 0.2%, while sales at building material and garden equipment retailers rebounded 1.5%. Sales at electronics and appliance stores increased 0.4%.

Spending at hobby, musical instrument and book stores edged up 0.1%. Receipts at bars and restaurants, the only services category in the retail sales report, climbed 0.1%.

Excluding automobiles, gasoline, building materials and food services, retail sales increased 0.8% last month after rising 0.7% in June. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product and were previously reported to have risen 0.8% in June.

"The increase in underlying retail sales is consistent with a rebound in real consumption at the beginning of the third quarter," said Michael Pearce, a senior U.S. economist at Capital Economics in New York.

Consumer spending grew at its slowest pace in two years in the second quarter. The modest rise was offset by weakness in business and government spending as well as residential investment, resulting in the second straight quarter of GDP contraction. But with the labor market maintaining a brisk pace of job growth in July and industrial production hitting a record high, the economy is probably not in recession.

Still, the Fed's aggressive interest rate increases to dampen demand and curb inflation have left the economy vulnerable to a downturn. The U.S. central bank has hiked its policy rate by 225 basis points since March.

Core retail sales are holding up even as spending is shifting back to services like restaurants, recreation and air travel as Americans learn to live with the COVID-19 pandemic."

MY COMMENT

Unfortunately for the short term.....the media and traders and other short term people are obsessively focused on the FED and the odds they will do this or that.

These retail numbers are not HORRIBLE.....I think they represent a good starting point for the next six months. What will really matter.....over the rest of this year will be.....of course....EARNINGS......and......the extent to which consumers quit spending as the FED tries to CRASH the economy.

 

This little general market article contains the TARGET info that is also weighing on the markets at the open today.

Stock market live news updates: Stocks open lower after Target, retail sales disappoint

https://finance.yahoo.com/news/stock-market-live-news-updates-august-17-115355115.html

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

"U.S. stocks opened Wednesday's trading session lower as investors struggled to maintain recent momentum amid a slew of downbeat headlines.

Shortly after the market open, the S&P 500 was off 0.9%, the Dow down 0.7%, and the Nasdaq off 1%.

Wednesday morning, retail earnings, retail sales data, and an inflation check from the U.K. all combined to weigh on investor sentiment.

Key retail sales data for July out Wednesday morning showed sales growth was flat from June to July, missing expectations for a 0.1% increase. Excluding autos and gas, sales rose 0.7% in July.

Sales at gasoline stations fell 1.8% in July, an expected decline given the drop witnessed in gas prices over the last few months.

On the earnings side, results from Target showed the company's quarterly earnings missed expectations as its key same-store sales measures rose 2.6% against expectations for a 2.8% increase in the second quarter.

These results come after Walmart (WMT) reported a better-than-expected quarter on Tuesday, lifting some investor hopes consumer spending may remain durable in the face of rising prices.

On a call with reporters early Wednesday, Target emphasized its optimism for the upcoming holiday season, and said its needed inventory adjustments weighted on second quarter results.

Target shares were down about 4% in early trading

Shares of TJ Maxx parent TJX (TJX) were also lower early Wednesday, falling as much as 1.5% after the company reported second quarter sales that missed estimates while also lowering its current quarter profit outlook.

Inflation data from the U.K. out Wednesday also showed consumer prices rose 10.1% in July, with some banks now expecting inflation in the U.K. to hit 15% next year. Though recent data suggests a moderation in U.S. inflation pressures, European consumers and businesses do not appear out of the woods just yet.

Elsewhere, investors will continue to keep a close eye on energy markets, with WTI crude oil futures settling at their lowest level since January 25 on Tuesday. Early Wednesday, WTI futures were down another 0.2%.

The meme stock rally also continued early Wednesday, with shares of Bed, Bath & Beyond (BBBY) up 37% in early trading after shares rallied 29% on Tuesday. During Tuesday's trading session shares were halted at least twice for volatility.

After the market close on Tuesday, Ryan Cohen's RC Ventures disclosed it holds call options on 1.6 million shares of Bed, Bath & Beyond, with strike prices between $60-$80. Shares were trading at around $25 early Wednesday.

Elsewhere in market oddities, Elon Musk was at it again late Tuesday, tweeting that he was going to buy English football club Manchester United (MANU) before clarifying the tweet was a joke. Man U has started its Premier League season with two embarrassing losses and currently sits in last place.

The S&P 500 on Tuesday also traded up to its 200-day moving average, a long-term technical indicator that broadly points to a security's overall trend. The S&P's 200-day is currently declining and stands at around 4,323, a level the index hit on Tuesday and immediately traded lower from before closing at 4,305."

MY COMMENT

This little article is right as far as it goes....at least as to the open today. BUT.....it definitely downplays the Target earnings miss. See post below.

 

Here are the actual Target earnings that are weighing on the markets so far today.

Target’s earnings take a huge hit as retailer sells off unwanted inventory

https://www.cnbc.com/2022/08/17/target-tgt-q2-2022-earnings.html

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

"Key Points

• Target’s profit plunged as it slashed prices to clear out a glut of unwanted inventory.
• The retailer maintained its outlook for the year, however.
• “If we hadn’t dealt with our excess inventory head on, we could have avoided some short-term pain on the profit line, but that would have hampered our longer-term potential,” Target’s CFO said.

Target on Wednesday said its quarterly profit fell nearly 90% from a year ago, as the retailer followed through on its warning that steep markdowns on unwanted merchandise would weigh on its bottom line.

The big-box retailer missed Wall Street’s expectations by a wide margin, even after the company itself lowered guidance twice.

Yet the company reiterated its full-year forecast, saying it is now positioned for a rebound. It said it expects full-year revenue growth in the low to mid single digits. Target also said its operating margin rate will be in a range around 6% in the second half of the year. That would represent a jump from its operating margin rate of 1.2% in the fiscal second quarter.

Shares of Target fell more than 2% in premarket trading.

Chief Financial Officer Michael Fiddelke defended Target’s aggressive inventory efforts. He said the retailer had to move swiftly, so it could clear the clutter, gear up for the holidays and navigate an economic backdrop clouded by inflation.

“If we hadn’t dealt with our excess inventory head on, we could have avoided some short-term pain on the profit line, but that would have hampered our longer-term potential,” he said on a call with reporters. “While our quarterly profit took a meaningful step down, our future path is brighter.”

Here’s how Target did for the three-month period ended July 30, compared with Refinitiv consensus estimates:

• Earnings per share: 39 cents vs. 72 cents expected
• Revenue: $26.04 billion vs. $26.04 billion expected

Target has had a sharp reversal of fortunes over the past two quarters. After posting quarter after quarter of eye-popping sales numbers during the Covid pandemic, it has seen clothing, coffee makers, lamps and more linger on the shelf – and then get kicked to the clearance rack. Some of that excess merchandise is the same stuff that sold out during earlier parts of the pandemic, when shoppers snapped up home decor and loungewear.

The turnabout forced the big-box retailer to cut its profit outlook twice, once in May and then again in June, and to pledge to move quickly to get its inventory level to a healthier place.

Inventory was still high, though: $15.32 billion at the end of the second quarter, compared with $15.08 billion at the end of the first.

But CEO Brian Cornell said on the call with reporters that it is a more favorable mix, as Target leans into high-frequency categories like food and household essentials along with popular categories like seasonal merchandise. It canceled more than $1.5 billion in orders for discretionary categories with lower demand.

Fiddelke said the inventory number is larger because of cost inflation and receiving inventory earlier to make sure Target is ready for the holidays.

In the second quarter, the company’s net income fell to $183 million, or 39 cents per share, from $1.82 billion, or $3.65 per share, a year earlier.

Total revenue rose to $26.04 billion from $25.16 billion a year ago, driven partially by higher prices due to inflation.

Quarterly profits got squeezed in many different ways. Sales of a lot of merchandise became less profitable as it got marked down. Freight, transportation and shipping costs rose, as fuel prices increased. And the company had to add head count and cover more compensation in distribution centers as it dealt with a glut of extra stuff.

The company told CNBC that about three-quarters of its market share gains in food came from households with an annual income of $100,000 or more.

Target, on the other hand, said it is not seeing as much inflation-fueled change. Sales by unit grew in all five of its major merchandise categories, with particular strength in two categories: food and beverage, and beauty and household essentials.

Even as profits fell, comparable sales and traffic rose.

Comparable sales, a key metric that tracks sales online and at stores open at least 13 months, grew 2.6% in the second quarter, on top of an increase of 8.9% last year. That fell just short of estimates, which anticipated a 2.8% rise, according to StreetAccount.At Target’s stores and on its website, traffic increased 2.7% year over year.

Fiddelke, the CFO, said the traffic growth isproof that shoppers still have spending power and will help Target deliver on its rosier profit outlook for the back half of the year.

“The resilience of that strong guest response positions us well, even if I can’t predict every curveball that might come at us in the fall season,” he said on the call with reporters.

Food and beverage was Target’s strongest category in the three-month period, with comparable sales growth in the low double digits, the company said. Beauty grew in the high single digits, as Target adds Ulta Beauty shops inside of more stores. And essentials grew in the mid single digits, fueled by pet supplies and health-care items.

Comparable sales in discretionary merchandise categories noticeably softened, but added up to nearly $3.5 billion or more than 35% higher than the same period in 2019. Sales of hardlines, a category that include electronics, were down slightly year over year. Home declined by low single digits. And apparel dropped by the low single digits, despite sales growth of women’s fashion-forward clothing.

Fiddelke said consumers vary by geography and income level, and they seek value in different ways. For example, some are buying bigger packs to save more per unit or trying one of Target’s lower-priced private labels instead of a national brand.

Cornell said Target is watching consumer spending closely. He said it is stocking up on popular items and ordering fewer of goods that shoppers may skip over.

“We’re going to take a very balanced approach,” he said, making sure to “plan cautiously” in discretionary categories where the company has seen shifts in behavior.

On a call with analysts on Wednesday, Target’s chief growth officer, Christina Hennington, said the retailer has spoken with customers to get a better sense of their mindset. As they feel inflation, they are stretching the budget by taking advantage of promotions and consolidating store trips, she said. It found that Target shoppers still have spending power, but that “confidence in their personal finances continues to wane.”

As of Tuesday’s close, Target’s shares are down about 22% so far this year. The stock closed Tuesday at $180.19, rising nearly 5% that day after Walmart beat earnings expectations."

MY COMMENT

It is typical....but still too bad....that the markets allow themselves to be jerked around by earnings from a mid level retail store that is NOT that dominant here in the USA. I know they have a very loyal middle to upper-middle class customer base......but they are still a medium level retail store.

This is a MASSIVE earnings miss. It is on top of a dismal year and lowered expectations.

 

While the "professionals" do their AI micro-second-trading- and other short term strategies......the retail investor....the real GUTS of the market.....continue as usual.

Retirement accounts take hit with inflation, but investors stay the course
New Fidelity study shows investors are still committed for the long haul

https://www.foxbusiness.com/persona...unts-take-hit-inflation-investors-stay-course

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

"It was a rocky second quarter for many Americans who saw their retirement accounts take a hit as inflation roiled the stock market.


However, a new study shows most investors are still committed to the long haul despite uneasiness over volatility.

Fidelity Investment's latest Q2 2022 Retirement Analysis, released Wednesday and viewed ahead of time by FOX Business, shows that while anxiety is high among American retirement savers, folks are overwhelmingly staying the course toward building long-term wealth.

The mutual fund giant found that the average 401(k) balance fell to $103,800 in the second quarter, a 20% drop from the same period a year ago and 15% lower than the first quarter of this year.

But the data also points to several encouraging trends indicating investors continued to take positive steps in saving for retirement.

Fidelity's survey found that individual retirement account (IRA) savings climbed by double digits since the second quarter of 2021, with striking account growth among younger females with a year-over-year increase of 92% for Gen Z women and 24% for millennials.

The total savings rate also remained high, reaching 13.9%, which is close to Fidelity's suggested savings rate of 15%.

There was a decline in both 401(k) loans initiated and the percentage of workers with a loan outstanding. Only 2.4% of respondents initiated a loan in the second quarter, and the percentage of those with an loan outstanding fell to 16.7%, down from 18.9% in the same quarter of 2020, during the early throes of the COVID-19 pandemic.

The study also showed that investors resisted the urge to panic due to the market's dips and turns.

Fidelity reported that the majority of 401(k) and 403(b) savers did not make any changes to their allocations during the second quarter, and of those who did, 85% only made one. The top change made by respondents involved shifting savings to more conservative investments.

Michael Shamrell, vice president of Fidelity thought leadership, says the findings are a positive sign.

"We try to encourage people to take a long-term approach to retirement savings, so it’s great to see that the majority of retirement savers stayed the course and did not make changes based on the market uncertainty in Q2," Shamrell told FOX Business.

"Even for people nearing retirement, it’s important to remember that your savings may have to last 15, 20, 25 years after you retire. So you want to continue to take a long-term approach and not make changes based on short-term market swings."

MY COMMENT

These investors are the REAL GUTS of the markets. Forget the short term traders and the big banks. This is where the really HUGE money sits.

It is amazing......well not really......that when REAL CRITICAL money is involved....people are classic long term investors. This is retirement money......the most important money there is for most people. How do they invest it? Using classic buy and hold, long term, investing strategies.

They buy index funds, dont do market timing, dont do short term trading, dont churn their own account, etc, etc, etc. The TRUTH.....long term investing and long term investors.....are the TRUE REALITY.....of the markets.

 

I agree Smokie.

As to Target....we have one not too far from our house. Walmart is much further away. Where do we usually go? Walmart. The local Target here is NEVER crowded and NEVER a full parking lot. I personally consider them a niche retail store. Their customer base here in my area is.......younger, suburban, women....probably mostly stay at home mom's...upper middle class. They seem to go there for the better quality kids and women's clothing....as well as the home items like Magnolia, white farmhouse style retail stuff, etc, etc. Most of their home decor stuff seems like lower priced versions of Pottery Barn "stuff". At least the store is very relaxing to walk around in.

They are DEFINITELY NOT a mass market retail store and never will be.

TJ MAXX......yeah.....I thought they went the way of SteinMart.....which have all closed around here.

 

Market is strengthening to the.....DOWN....side now. Probably a lost day today......but we have a long way to go.

We cant be UP every day. I am more concerned with stringing together POSITIVE months....compared to days and weeks. Talking about market time periods.....the minimum time period...... that I really care anything about is the annual results of my account.

Of course.....if you are talking about long term investing......to me....that means 5-7 years MINIMUM.

 

If you are interested in much of the cause for our current economy and business environment....here you go....continued world wide supply chain distortions.

The U.S. supply chain is now facing two trade hurdles

https://www.cnbc.com/2022/08/16/the-us-supply-chain-is-now-facing-two-trade-hurdles.html

MY COMMENT

Much good information in this little article. OBVIOUSLY the supply chain issues are probably the LARGEST issue in our economy right now and the root cause of much of what is going on now. The FED........they have ZERO ability to fix any of this stuff. Probably a good thing since if the FED was involved in trying to cure this stuff......ir would definately get worse.

 

I dont have any complaints about the markets today. They cant go up every day. They also backed off from the earlier losses by the close.

I ended the day in the RED but moderately. I even managed to beat the SP500 today by 0.11%. I will take that as a victory. I had two of ten stocks that were UP today....Costco and Apple.

 

The FED minute release about 2:00 appears to have been the reason that the losses moderated a bit today.

Fed sees interest rate hikes continuing until inflation eases substantially, minutes show

https://www.cnbc.com/2022/08/17/fed-minutes-july-2022-.html

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

"Federal Reserve officials at their July meeting indicated they likely would not consider pulling back on interest rate hikes until inflation came down substantially, according to minutes from the session released Wednesday.

During a meeting in which the central bank approved a 0.75 percentage point rate hike, policymakers expressed resolve to bring down inflation that is running well above the Fed’s desired 2% level.

They did not provide specific guidance for future increases and said they would be watching data closely before making that decision. Market pricing is for a half-point rate hike at the September meeting, though that remains a close call.

Meeting participants noted that the 2.25%-2.50% range for the federal funds rate was around the “neutral” level that is neither supportive nor restrictive on activity. Some officials said a restrictive stance likely will be appropriate, indicating more rate hikes to come.

“With inflation remaining well above the Committee’s objective, participants judged that moving to a restrictive stance of policy was required to meet the Committee’s legislative mandate to promote maximum employment and price stability,” the minutes said.

The document also reflected the idea that once the Fed gets comfortable with its policy stance and sees it having an impact on inflation, it could start to take its foot off the policy brake. That notion has helped push stocks into a strong summer rally.

“Participants judged that, as the stance of monetary policy tightened further, it likely would become appropriate at some point to slow the pace of policy rate increases while assessing the effects of cumulative policy adjustments on economic activity and inflation,” the minutes said.

However, the summary also stated that some participants said “it likely would be appropriate to maintain that level for some time to ensure that inflation was firmly on a path back to 2 percent.”

Officials noted that future rate decisions would be based on incoming data. But they also said there were few signs that inflation was abating, and the minutes repeatedly stressed the Fed’s resolve to bring down inflation.

They further noted that it likely would “take some time” before policy kicked in enough to have a meaningful impact.

The consumer price index was flat for July but was up 8.5% from a year ago. A separate measure the Fed follows, the personal consumption expenditures price index, rose 1% in June and was up 6.8% year over year.

Policymakers worried that any signs of wavering from the Fed would make the situation worse.

“Participants judged that a significant risk facing the Committee was that elevated inflation could become entrenched if the public began to question the Committee’s resolve to adjust the stance of policy sufficiently,” the minutes said. “If this risk materialized, it would complicate the task of returning inflation to 2 percent and could raise substantially the economic costs of doing so.”

Though the Fed took the unprecedented steps of hiking three-quarters of a point at successive meetings, markets have been in rally mode lately on hopes that the central bank might soften the pace of increases heading into the fall.

Since the recent bottom in mid-June, the Dow Jones Industrial Average is up more than 14%.

The minutes noted that some members worried the Fed could overdo it with rate hikes, underscoring the importance of not being tied to forward guidance on moves and instead following the data."

MY COMMENT

The media and the FED just.....LOVE.....to make it all about the FED. I think they just LOVE the attention....that is the only logical explanation why they will not simply give a near term commitment to certain rate increases. Leaving everything up in the air and making people guess what they are going to do next is simply IDIOTIC.

I dont believe there is anywhere near the OBSESSION that you see in the media on what the FED is going to do next. I think it is......mostly......simply the MEDIA pushing the narrative back and forth to drive clicks.

Personally I dont see any reason why they would not do a 0.75% increase again in September. It is.....as usual....the media driving HOPE that the increase might only be 0.50%.

I dont even think the FED had anything....or....much......to do with this little RALLY we have been having. I pin most of it to EARNINGS and rational retail investors seeing that the markets were OVERSOLD and it was a good time to put money to work. I also think part of the rally is due to the continued REFUSAL by the Ten Year yield to go up.

At this point the FED is simply well known background noise.