Retail sales came in soft for February, with some strength in staples. Discretionary was so/so which would have seemed bad two months ago but comes as a bit of a relief in light of the bloodletting we've seen in stocks levered to the consumer over the last month.
Shares of Walmart are down 17% in the month since the company took down guidance for the year based on Tariffs and the general ennui of consumers in the face of "economic uncertainty". Walmart wasn't a cheap stock at $105 but at $80 shares are pricing in a weak St Patrick's Day, a soft Easter and about a 70% chance of a lousy Christmas.
Being the low-price provider of discount grocery and household items isn't a bad thing in a weak economy. Walmart is the world's largest employer (except the Chinese Army). COVID and the resulting supply chain disasters made Walmart a much better operator. For Walmart to keep breaking lower from here it's going to take more than flexing and sentiment. It'll certainly take more than a .3% change in retail sales for February and some weak Consumer Sentiment surveys.
What happens if the sky doesn't fall? What if the economy sags for a bit but doesn't collapse? Do consumers stop using Uber because they feel vague concerns for the future? No. Americans are the best damn consumers on earth. They scale back their spending plans based on the personal utility added by the product sold. Vegas has reportedly gotten slow but Disney parks are still packed and demand for cruises is still strong. It's a mixed bag with the most Optional spending getting trimmed, largely because the stock market is lower.
America has a short attention span. The trade war headlines are losing their ability to scare. Unless the data goes hard south from here stocks will start to find a base, at worst and possibly a tradable rally.
The market predicts a devastating recession every few years, which is much more often than recessions actually happen. Stocks have been going down in a straight line for a month. That's a good start for long-term ideas. It's time to go shopping for stocks making more of the things Americans won't give up no matter how scary the headlines are.
Earnings Week
Another big week of earnings, featuring huge economic "Tell" companies in Nike (near multi-year lows) and Carnival Cruise, part of a group of stocks that have been crushed over the last month:
Here's a fun fact about Cruising: People who cruise freaking love it and will never, ever stop.
Noro-Virus outbreaks? Not a problem. Random violence? Small price to pay. Cruise demand hasn't so much recovered from COVID because it never really went away, despite the entire industry being shut down, nearly tipping the companies into bankruptcy as consumers waited patiently for the lockdown to end so they could once again board what amount to floating Petri dishes.
Carnival has mountains of debt and a lower-end target customer. They are the Walmart of cruising if Walmart had $1.50 in debt for every dollar of revenue and stores were lawless pirate ships. Last quarter Carnival said advanced bookings were at an all-time high. Of course, that was December when the market was also at all-time highs and Trade Wars were still sort of a quirky idea that wouldn't last.
I think the cruise lines have bottomed.
No one feels confident enough to get Married
Mall jewelry monopoly Signet reports on Wednesday, for those of you looking for reasons to be cynical about love and consumption.
Expectations are low but Signet is likely to warn, regardless. There are degrees of "discretionary". People have to be feeling either really optimistic or very trapped to choose to get married. Even if they do they can get lab grown diamonds that are indistinguishable from real stones for much less money.
Signet does a lot of business for Valentine's Day (which is when the slowdown started), Christmas (ancient history) and engagements.
Signet trades at 5x earnings still isn't cheap. Might have support near the wrist around $40 but this isn't the part of the mall you want to go looking for bargains.
Bonus: Starbucks Update
"4 minutes! 4 minutes for my (Starbucks)! Thank you very much Brian Niccol!"
People are going to be amazed how much Starbuck's financials improve just by fixing the store experience.
Time to Be Buying...
For your consideration: 4 "new staples" I'm buying right now.
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