A rocket designed to carry people back to the moon for the first time in 50 years is on its way this morning, but stocks are stuck at the launch pad.
As Artemis 1 speeds off, investors back on Earth mull retail sales and a couple fresh big-box earnings from Target (NYSE:TGT) and Lowe’s (NYSE:LOW). After Walmart's (NYSE:WMT) solid results yesterday, TGT serves as a reminder that every retailer deals with different circumstances, making it a tough industry to put a box around, so to speak.
Before checking TGT and retail sales, it’s worth noting that the benchmark 10 Year Treasury Yield continues to decline. It’s now down at 3.73%, its lowest level since early October. Yields have been falling for a while, but yesterday’s Producer Price Index (PPI) data and more data weakness out of China added fuel to the fixed income rally yesterday. The drop in yields reverses one obstacle that put a hold on recent rallies.
Another rally-breaker, the U.S. dollar index, also remains under pressure this morning, falling below 106. If stocks can’t arrest their early slide, they won’t be able to blame yields or the dollar.
Keeping the dollar in mind, it’s interesting to see U.S. import prices fell 0.2% in October, according to data this morning. Lower import prices are a good sign for the economy, but remember that they’re one benefit of the strong dollar, which is hard on the rest of the global business world.
Just In: Lowe’s and Target Earnings, Retail Sales
Off Target: Shares of TGT cratered 13% premarket after the company forecast a rough holiday season. Calling the current environment, “Increasingly challenging,” Target lowered its top- and bottom-line expectations for Q4. Earnings were well below Wall Street’s Q3 expectations.
This comes after the major retailer saw sales and profit trends “soften meaningfully” in the latter weeks of Q3, resulting in Q3 profit well below its expectations. TGT said it observed shopping behavior “increasingly impacted by inflation, rising interest rates and economic uncertainty.”
Walmart managed to avoid Target’s scenario when announcing its numbers Tuesday, but TGT’s outlook still raises questions about consumer health heading into the peak shopping season of the year.
According to TGT, consumers are spending more on essentials like groceries, but waiting for markdowns before buying stuff they don’t need right away. This trend hurts TGT more than WMT, because TGT’s business is weighted more heavily toward discretionary items.
Lowe’s Looks Solid: Around the corner at LOW, things look lot less worrisome in Q3. Shares rose 1% in premarket trading after the company’s earnings beat Wall Street’s expectations. LOW also raised its outlook. Heavy sales growth to professional contractors helped the company in Q3, and “do-it-yourself” trends also improved, the company said. LOW’s solid results came a day after an upbeat earnings report from Home Depot (NYSE:HD). At least for now, it appears the home renovation market is doing OK despite reports of its post-pandemic downfall.
Retail Sales Roar: Though TGT appeared to miss the party, U.S. October retail sales climbed a much higher than expected 1.3% as consumer spending looked pretty nice. Wall Street had expected 0.9% growth. This goes against the “economy is slowing” thesis, especially because with inflation easing a bit in October, the rise in sales can’t be simply attributed to rising prices. Consumers raised their spending on gasoline, food, and cars, among other things.
Amid all this morning’s churn, the CBOE Volatility Index remains below 25, but keep an eye on it for possible moves toward 25 that might suggest more pressure on stocks.