Thursday, August 15, 2024

Markets after better-than-expected US retail-sales data

Dow went up 465, advancers over decliners 3-1 & NAZ advanced 347.  The MLP index rose 3+ to 277 & the REIT index was steady at 412 while yields rose.  Junk bond funds were in demand & Treasuries had heavy selling which raised yields sharply (more below).  Oil rose 1+ to the 78s & gold gained 12 to 2492.

Dow Jones Industrials


Walmart (WMT), a Dow stock & a Dividend Aristocrat, the largest retailer & private employer in the US, reported another strong qtr, surpassing expectations as it enticed shoppers with more discounts on groceries.  Revenue climbed 4.8% to $169B during the 3-month period ending Jul 31, higher than the $168.5B expected.  Adjusted earnings per share came in at 67¢, also above 65¢ expected.  The company also raised its guidance for the full year.  It now expects sales to increase by 3.75 - 4.75% & EPS to come in at $2.35 - $2.43.  For its US segment, the company generated $115.3B in net sales.  Sales at stores open for at least a year grew 4.2%, driven in large part by increased transactions in grocery.  During the period, WMT saw promising signs in its general merchandise category, reporting flattish to very slightly positive sales for the first time in 11 qtrs.  Meanwhile, the company continued to offer more temporary discounts on groceries.  In the US, the company had 7200 rollbacks, otherwise known as price cuts, during the qtr, which included a 35% increase in the number of rollbacks in food.  During the prior fiscal qtr, earnings also topped expectations, though CFO John David Rainey warned that "many consumer pocketbooks are still stretched."  The company has continually gained higher-earning shoppers, households that exceed $100K a year, in back-to-back fiscal qtrs.  That group of high earners continued to account for the majority of the share gains in the prior qtr, the company said.  The stock rose 4.47 (7%)'

Walmart beats Wall Street expectations, raises outlook as it offers more grocery discounts

Consumer spending held up even better than expected in Jul as inflation pressures showed more signs of easing, the Commerce Dept reported.  Advanced retail sales accelerated 1% on the month, according to numbers that are adjusted for seasonality but not inflation.  The forecast had been looking for a 0.3% increase.  Jun sales were revised to a decline of 0.2% after initially being reported as flat.  Excluding auto-related items, sales increased 0.4%, also better than the 0.1% forecast.  There was also good news on the labor market front: Initial unemployment benefit claims for last week totaled 227K, a decrease of 7K from the previous week & lower than the estimate for 235K.  Gains in sales were propelled by increases at motor vehicle & parts dealers (3.6%), electronics & appliance stores (1.6%), & food & beverage outlets (0.9%).  Miscellaneous retailers saw a plunge of 2.5% while gas stations saw receipts climb just 0.1% & clothing stores were down 0.1%.  The report comes the same week as data showing that inflation eased slightly in Jul.  There was 1 counterpoint to that in another data release today in which the Labor Dept said import prices increased 0.1% in Jul, slightly ahead of the forecast for no change.  On a year-over-year basis, import prices rose 1.6%, the biggest gain since Dec 2022.

Consumer spending jumped in July as retail sales were up 1%, much better than expected

Treasury yields rose after Jul retail sales data came in surprisingly strong.  The yield on the 10-year Treasury note climbed more than 8 basis points to 3.909% & the 2-year Treasury yield jumped more than 10 basis points to 4.057%.  Yields & prices move in opposite directions & 1 basis point equals a one hundreth of a percent (0.01%).  Yields took a big leg up after retail sales jumped 1% in Jul, far above a forecast of 0.3% growth.  That can be taken as a sign that consumer spending is too robust to justify fears of a recession, or even an economic slowdown.  Concerns that the economy was headed for a slowdown were stirred 2 weeks ago when Jul nonfarm payrolls came in far weaker than had been expected.  The latest reports came after consumer & wholesale inflation readings earlier in the week reassured investors that the Federal Reserve has largely succeeded in its fight to contain rising prices.  The data reinforced expectations of a Sep interest rate cut, which is being fully priced in by markets & would see the Fed join its counterparts in the 20-nation euro zone & UK, where central banks have already begun cutting interest rates.

10-year Treasury yield tops 3.9% after strong retail sales quiet concern about a slowdown

Stocks advanced on signals that pointed to a still-strong US consumer & labor market.  However, higher interest rates are not welcomed by investors.  And as usual, there was demand for gold.

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