If the job market is as strong as the Labor Department says it is …
Market Roundup
And the Wall Street “experts” are right about how much buying power consumers get from lower gas prices …
Then why the heck are retailers so weak?
Look at the SPDR S&P Retail ETF (XRT), an equal-weighted ETF that owns 104 leading retail stocks. Or the PowerShares Dynamic Retail Portfolio (PMR), an ETF that owns 30 retailers that meet certain price and earnings momentum, quality, and value screens. You can see they’ve been dramatically underperforming the S&P 500 during the recent bounce, and may be on the verge of rolling back over.
Some individual retail stocks look even more hideous. Take Kohl’s (KSS), off 28% year-to-date. Or Wal-Mart Stores (WMT), off 32%. Or Gap (GPS), down 34%.
These are exactly the kinds of stocks you’d expect to thrive in a “booming” job market, with the cost of necessities like gasoline falling. But instead, the Grinch is paying them an early visit ahead of the upcoming holiday season.
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| Weakness for retailers doesn’t bode well for the overall economy. |
Some of it stems from bad news out of specific companies. I highlighted Wal-Mart’s major warning in October, and it was joined by Gap late yesterday. The operator of its namesake stores, as well as Banana Republic and Old Navy, said same-store sales dropped 3% year-over-year in October. That will force the company to miss third-quarter revenue and profit targets.
But it’s more than that. Analysts took the axe to price targets and sales projections for several department store retailers this week. Their victims included Kohl’s, Dillard’s (DDS) and Macy’s (M).
They cited everything from the threat of online retailers like Amazon.com (AMZN) poaching business to warm weather, which could leave retailers stuck holding too much winter inventory. There’s also a growing consensus that the U.S. just has too many retail chains and stores for a more tight-fisted consumer.
Maybe I’m old-fashioned. But considering how the economists love to tell us the U.S. depends heavily on consumer spending to fuel GDP, this doesn’t sound good for growth.
| “There’s a growing consensus that the U.S. just has too many retail chains and stores.” |
I believe the technical trading action in the sector is another worrisome sign for the broader markets, too. So if you’re loaded up on stocks on the assumption we’re in for a strong finish to the year, and that the rally off the September lows is an “all clear” signal, I’d keep a close eye on the retailers. They may be pointing to a different outcome.
Now I’d like to hear your take. Should we be worried that the retailers aren’t keeping pace with the S&P 500? Or is it just a sector-specific problem?
Do you own any retail stocks, and if so, how are they working out for you? Are there any sector standouts you think can buck the trend – or particularly vulnerable companies you’d sell the heck out of? Make sure you stop by the Money and Markets website to weigh in.
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What will happen the next time a major banking crisis hits? Will the latest efforts to force banks to build up a financial cushion against bad times actually protect taxpayer or depositor funds? Those are a few of the issues you’ve been discussing over at the website.
Reader Bob said: “All the bonds and loans need to take their losses sooner rather than later, and rather than the U.S. taxpayer ‘refinancing’ the deals that the hedge funds and the finance industry pushed to the limit for their own benefit. The politics should not give away equity to the ones that have profited at the cost of the taxpayer.”
Reader Jean added: “The derivatives market is much larger today than it was back in the financial crisis, and the big banks were also allowed to grow much larger. So much for reducing the risk these banks create without hurting the economy and Mr. Taxpayer.
“In essence, it’s all lip service. If Europe blew up, there would be no amount of equity to cover it simply because there isn’t — it’s all debt and too far gone!”
Reader Howard noted another key reason why banks continue to get themselves in trouble: “Not one of these smart guys has felt the full force of the law and the public has been left holding the bag. Send them to jail if we want confidence restored in the system.”
Finally, Reader Gernot R. suggested another way to reduce risk in the banking system — shrink them! His comments:
“The whole discussion of ‘Too big to let fail’ is absurd. These big banks should simply be broken into pieces. Don’t let anybody tell you we need megabanks for megaprojects — that is just B.S. The old syndicated loan mechanism worked just fine.
“Today, if you look at the abomination called Citigroup (C) for example, it makes your hair stand up. These guys are so incompetent, they are a danger to the taxpayer. If they were broken up into about 25 units, you would have some real businesses and the threat to the taxpayer would be gone.”
I appreciate all the input. It’s clear our banking system has only gotten more concentrated in the wake of the financial crisis, and Europe’s mega-banks are even more potentially dangerous than ours.
That means these stocks could be incredibly vulnerable in the event of another major credit market downturn. Considering there are already signs the emerging market/M&A/junk bond/stock buyback bubbles are beginning to burst, that’s something to keep in the back of your mind when you’re considering where to invest your hard-earned dollars.
Any ground I didn’t cover? Additional thoughts you want to add? Here’s the link where you can jump in on the discussion.
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Easy money has given investors a sugar high … literally. Hedge funds and other fast-money traders have dog-piled into the sweet commodity in recent weeks, driving futures prices up 39% from their August lows.
But futures prices are running far ahead of actual prices in the physical sugar market. That’s a sign some of the run up is basically hedge funds looking for something — ANYTHING — to buy in a commodity market that’s been falling for several years in a row.
The International Energy Agency piled on with the doom and gloom in energy, saying oil prices will remain subdued through 2020 due to excess supply and lackluster demand growth globally. It cited greater energy efficiency, a shift toward cleaner fuels, and reduced demand growth from emerging markets like China.
Boston Fed President Eric Rosengren added to the chorus of Fed officials signaling a rate hike in December is increasingly likely. He cited relatively strong economic data, the chase for yield in sectors like commercial real estate, and other factors as reasons to get the hiking process started.
The leading Republican candidates will go at each other again in a debate hosted by Fox Business News in Milwaukee tonight. Eight candidates will be on stage at the same time, which comes amid background questions focused on Ben Carson and worries that Jeb Bush is fading into the background.
So is Rosengren right, and a rate hike finally coming? What do you think about the IEA’s gloomy oil outlook? And what kind of fireworks or substantive comments do you anticipate in tonight’s debate? Hit up the website and weigh in when you have a chance.
Until next time,
Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
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I hate being a statistic but you can add my name to the growing list of Amazon clients. Their service is outstanding and they stay in contact with items on sale that I am interested in.It’s almost like an ongoing conversation of like minded products.They stay current with my hobbies,my work,the kind of books I read and so on. When I receive information from them,it is always about something I would be interested in.
NO,I don’t work for Amazon but living in a foreign country makes them more valuable to me.
Retailers are facing the same slowdown that all sectors are experiencing. Real wages adjusted for inflation have been going down for 25 years and government deficit spending can no longer offset thetrend.
Banks continue to invest money in questionable areas. They continue to absorb losses, they continue to borrow “free” money from the Fed. They expect the Fed to bail them out which they have done in the past. They issue questionable credit, look at GE Capital and AIG, General Motors Mortgage (it was the home loans not the cars that sank GM) Countrywide and a host of others, big bucks thrown at them and away by the Fed. We are starting to see the same subprime loans tat foreshadowed the last housing crisis. And when the lenders try to tighten credit requirements the regulators fault them. I have a bad feeling the banks and lenders are on a vicious financial merry-go-round and no one is at the brake. A As for retailers, yes there are more than we need and they have too many stores to close to each other. I have seen some large malls that have outlets for the same company at different ends of the Malls. I can drive to three Wal-Marts and two Target stores and two Sears store and two Home Depot in fifteen minutes from home. Two Wal -Marts are separated by three miles and one exit on the freeway, drive from Davis St in San Leandro past 98th Ave in Oakland to the next exit at Hegenberger, in California. There is a Home Depot also at Davis St., drive two more exits to High St in Oakland to the next Home Depot, about five miles.
“If the job market is as strong as the Labor Department says it is …Then why the heck are retailers so weak?”
Could it be because they’ve been hiring up so many minimum-wagers to sell all the Christmas tinsel and bows they’ve had laid out since before halloween?
My two best performing stocks have been Lockheed Martin and Huntington Ingalls, but I never hear the defense sector mentioned by anyone. Am I missing something? Events in the Middle East and the China Seas would indicate war is a pretty good bet. Jim
Wow, must make one feel pretty good to profit off of the death and destruction of others. War profiteers are the most morally bankrupt “investors”. Enjoy your blood money.
Holygeezer, there is always going to be war somewhere. It is inherent in the competitivness that allowed humans to come to the top of the food chain. Would you rather be a poor peacenic, or a wealthy warmonger?
I would rather be a poor peacenik. Seriously, I cannot fathom the avarice it must entail to actually say that war is a natural outcome of Competitiveness allowing humans to come to the top of the food chain. What utter BS. It was Cooperation among humans that initially allowed humans to make it to the top, whatever the “top” actually means. It is your glorious Competitiveness that is destroying the very ecosystem that we actually depend on for life, and not some silly abstract wealth of money. Anyway, I realize no one on this site cares about anything but making money no matter the cost. The ironic thing is that the hallowed monetary system everyone is chasing is going to come crashing down once and for all and then we will see just what the human race is actually made of. In the long or short term chasing money will be shown to be nothing but a dead end.
And for the record a small group of us actually stand and hold signs for peace every week in front of our state legislature building and we are led by a Marine Korean war veteran. He happens to believe that peace is worth standing for and bearing witness to and even possible. Yet another irony is that your wealthy warmongers will be the undoing of the human race in their greed filled quest.
Yes, one day ALL competitiveness will be a thing of ANCIENT history. We cannot keep raping the EARTH of her resources and expect a good outcome. When the warring gods and their followers [slaves] are gone “finally”we will have peace on EARTH. WAR DOES NOT BRING PEACE!!! ONLY HEARTACHE, POVERTY and DEPRAVITY.
But, in the mean time I gotta make money under the regime that exists, today. For my Manna hasn’t fallen from the heavens.
I have also done well with Altria. Jim
It does feel good knowing our boys have the best planes and ships so their blood isn’t spilled. Jim
Your boys are simply tools used by the world’s number one terrorist nation, the USA. It matters not to you that the USA has a long history of invading sovereign nations directly and indirectly to plunder resources and prop up Wall Street and their almighty dollar. It matters not to you the the US military was hijacked long ago by the corporate money changers. It matters not to you that the US military has nothing to do with the actual DEFENSE of the USA and has instead become an OFFENSIVE operation instead. It matters not to you that hundreds of thousands of innocent folks have been murdered at the hands of the US military in their ongoing illegal war crimes around the world. No, the only thing you care about is making money no matter the human cost to others. The boys you care so much about have no honor whatsoever when they carry out such illegal operations around the world. It folks like you who will ensure that the US continues to make endless war around the world because of the profits involved. Enjoy your blood money.
If you don’t like it here, and you hate capitalism, be a man and leave. You won’t be missed. No one that is stuck in 1969 is ever missed.
I remember being welcomed back home in 1971 by pukes like you, and as for your Marine friend, he has the right to do what he is doing, and his fellow Marines have the right to be embarrassed for him.
I have taken your suggestion to heart and I terminated my subscription to Money and Markets this morning. I find it sad that so many folks are unable to make the connection between endless and ongoing war and the immense and obscene profits made from war. War will never end as long as such profits are involved. And yes, I hate such forms of capitalism that allow such killing of innocent folks around the world in the name of making money. Clearly many people have no issue with making money no matter the cost. Such behavior sickens my soul. I leave you with one last thought. A highly decorated US Marine by the name of Major General Smedley Butler wrote an eye opening essay many years ago, clearly and honestly telling the truth about how and why the US Military functions in the world. It is titled WAR IS A RACKET. Look it up on the internet if you care about such things.
As far as the presidential debate blah-blah-blah goes, and further, any/all of the campaign promises we’re hearing now, once whoever it turns out to be gets elected, that’ll be the last we hear about these subjects!
Anyone out there to help ?
Took out an endowment mortgage 26 years ago with an Irish Bank. It matured over a year ago .The Bank took 50% of all contributions over the period for all sorts of fees charges. It returned just over 50% of the target endowment.. The original endowment monthly fee could not deliver the required returns unless the fund made extra ordinary returns , when the Bank expenses are deducted. How does one get redress for what was a disaster performance and a rip of fee structure when combined could never repay the mortgage.
John
Re-instate Glass-Steagall which would segregate commercial and investment banking and abolish the fractional-reserve banking system which allows the banking system to loan out approximately 9 times as much currency deposits (created out of nothing) as they have on deposit. If commercial banks couldn’t use depositor’s currency to speculate with and only loaned out real deposits bank failures would be rare.
Retired & healthy…yet I now pay more for Medicare than I’ve ever paid for health care. Crazy thing is I never went to a Dr & now “my” Dr practically begs me to see him only to tell me I’m still amazingly healthy.
Banking ills would all but disappear if lenders held their own paper. Separating risk from reward is a core failure of our banking system today.
Sadly both are symptoms of the same disease – the arrogant desire to mind my business and transfer my wealth.
When the Fed sees the early figures for the “Big” shopping season, do you really think they are going to raise rates? People just don’t have the money to spend anymore, for the reason Henry states above. Inflation is on its last legs now, as the buying power of wages has shrunk, and the Fed doesn’t raise rates to combat deflation. Even imports, the source of so much we buy these days, are falling. What of all those new cars people have bought, and are trying to pay for – or not. How many of those sub-prime auto loans are going to eventually default, even with loaners forgiving payments here and there to delay the inevitable? How many lower wage employers are going to stay in business with the stupid $15/hr. minimum wage laws being passed. Your local MickeyD will be trying to run with only 2 or 3 people most of the time. Or they will close.
The only retailing to be in that Amazon can not touch is convient stores Stores where consumers want it now…or very high end luxury.
Period case closed
I think Nordstrum is doing fairly well. They are holding off on holiday decorations until after Thanksgiving, by the way. Hooray!
Currently in middle of my third reading of “The Creature from Jekyll Island” by G. Edward Griffin and I am convinced the banking cartel & the Federal Reserve System they conspired to create is at the core of the financial debacle our country finds itself in today. It should be a required course of study for all who seek public office as well as included in business departments at our so-called institutions of higher learning.
Many folks are just fed up with the seasonal shopping.
Christmas decorations now come out before Halloween! Just very disgusting (as disgusting as being referred to as a “consumer” or a “taxpayer”.) And I think a lot of folks are starting to feel that way.
True. If it weren’t for the kids, there would BE no holiday shopping season. If people cut back even a little on spending for their children, retailers will be hurting – even Amazon.
Look no further than the wonderful “Unaffordable Care Act.” Does anyone have any leftover cash to spend given the extortion in this debacle? Personally, my rates went up
23% this year and I am not in the in the mood to spend money on retail. Reality is, I don’t have any money left to spend. Thank you Obama…… The good thing is, he will be out of office in a year, Hallelujah!!!
It always amazes me that folks like you so conveniently forget that the ACA was the product of a Republican think tank. I can’t stand either the R’s or the D’s as they are both equally owned by the oligarchs. It matters not who sits in the white house, as they are simply puppets for those who are truly in power. The ACA is nothing but another form of corporate welfare brought to you by both parties plain and simple.
Agree D & R both responsible.
I don’t care for Obama. But………………my comment still stands…………….with the increases in premiums & deductibles, it’s not hard to imagine that money is tight and discretionary spending is sliding down a rathole.
Holygeezer, Obama has sold the whole country to the oligarchs, with his over 10 ream high TPP. Fifty two hundred some pages of lawyer speak that bypasses the Constitution, and makes the nation and it’s traditions subject to the rule of three varying international lawyers – with no recourse in our courts. Agreed to by R’s and D’s in Congress meeting in near secrecy. Our media betrayed us in not opening this up, almost as Obama and Congress has betrayed us.
Seriously?! Obama is responsible?! Yes Obama is a complete stooge working for the oligarchs. But how about George W saying the constitution was nothing but a god damned piece of paper. This whole thing started decades before Obama and George W. Pretending that someone will come along and change anything is ludicrous. And I am not saying that is your position. But I am so sick and tired of idiots on this site thinking that it is all Obama’s doing. He is only the latest in a long string of stooges. And he won’t be the last in the fraudulent system that passes for elections in the US.
For all I know, the whole idea may have originated with George. Barack is just the one who will get the blame, because it finally came to pass under his rule. But they are all politicians, first, last and always. We the people are responsible for controlling them, and we haven’t Thus it is ultimately our fault.
I’ve been led to believe by the ‘so called’ experts that stores such as Wal-Mart do well during challenging times when consumers have less jingle in their jeans. Could it be that given the state of the economy, record low unemployment, that we are all shopping at more ‘hi-end’ retailers?
How can you be surprised about the retail blues. These businesses are not stupid and they know that 5.6% unemployment is a myth and that the economy is booming like a snail races. Suggesting that the economy is “vastly improving” is another attempt to scam a gullible pyblic into believing that the country is nowhere near the cliff anymore in hopes that they are caught flat-footed when the cards come crashing down. Just more smoke and mirrors from the political and financial elites.
Are retail sales the chicken or the egg? I submit sales are the result of a tapped out consumer. Total employment is down as a percentage of the population, cost of living is up no matter what the BLS says about its manipulated statistics and there is a general malaise about the economy that makes consumers fearful to spend. Worst of all, they see no future improvement no matter who wins next year’s election. And yes, Europe is worse and now the added burden of over a million refugees makes the prospect of economic collapse very real.
Savings on gasoline don’t offset the effects of Obama care. The out of pocket dollars are higher than ever before and will keep pulling consumer spending down. Also it has caused many to be under employed (30 hr. / week). Dollars get spent on real needs not the wish list.
Too many retail chains and stores? Really? Ha! If that is the case, then let’s bring back Hoover, FDR, and Frankfurter and really screw things up.The derivatives market is in the $TRILLIONS. Put a 5% sales tax on all derivatives sold. We’d have the entire national debt eliminated in less than 5 years.
$10 weekly gas savings doesn’t cover increased medical premiums. Talking heads don’t even look at that issue. Medical costs are killing thr poor and middle class, what’s left of the middle class.
Hey, consumers are carrying a lot of debt so how can they go to retailers. They are still eating (the big necessity) out but not at Walmart or Gap. Servers tell me that less than 5% of diners pay cash. What would you buy with the last few bucks you could put on plastic?
Part of that reason is Credit Card Rewards. Seriously. Why pay with cash? Cash doesn’t come with rewards. I try to put everything I can on the credit card, pay off my balance in full each month, pay no interest at all, and get my 1% – 3% cash back rewards each month. The credit card companies pay me. I’m pretty sure other people have discovered this awesome way to make a couple extra bucks.
Mike,
The simple answer is. Phony government figures must come to light. People do not have money to spend! Lower oil prices, reduce taxes, increase welfare, “no matter”. There are years of false economic numbers that have to work thru the real economy before any real money is available to spend.
Just saw an interesting item elsewhere. In the last quarter, 40 of the 93 E&P only oil companies reported $47 Billion in impairment charges, versus $34 Billion in the previous quarter for all 93. This compares with $46 Billion all year in 2008, when oil prices last collapsed. Total debt amounts to $243 Billion, so this is a substantial portion of that debt, which is still outstanding. I wonder how many of those producers will survive and keep pumping? Sorry to go off topic so far, but how many of those companies will need to lay off more people? Or all?
When Mearsk Lines talks I listen. Mearsk CEO Nils Anderson recently said, “We believe that global growth is slowing down. . .” and the company reported a 61% drop in third quarter profits. Mearsk is cutting its workforce by 4,000 jobs (-17%) and canceled new ship orders. Now if that doesn’t confirm that the Grinch is arriving well before Christmas then what else is needed to wake people up. I am giving my family gold coins for Christmas.
Talk to the actual consumer. Don’t rely on data from other sources (news, ticker data, previous financial forecasting). Find out how many are keeping the same budget as last year compared to this year. If it is different then you ask why the change of budget (lost my job, didn’t get my bonus, owe more on mortgage, owe taxes, etc). Go off their data of the consumer instead of data you hear and see on the news or elsewhere. Allot of it is fluff. The consumers will tell you more. Not the Grinch, company’s, or even the news.
I started buying all of my clothes at Costco several years ago. Costco and online shopping are just things I do to save money. When I was young and single with more disposable income I thought shopping at Nordstroms was cool. Now that I am older I find myself shopping like my Dad, whom I used to make fun of for his ultra-cheap bargain hunting mentality. Now at 52 I realize how smart my Dad really was….
I’m of the opinion that everyone is mistaken when it comes to rate hikes. They get the same results from TALKING about rate hikes as they get from actually hiking rates, and they are trying to see how a hike would play out. I doubt the economy is strong enough yet to sustain hikes. Is anybody besides me concerned that the inmates took over the asylum some time ago? At this point, I am beginning to think I’d feel safer if I was locked up instead of out trying to protect myself from this crazy market.
You are right Fred and I completely agree with you; but having said that, the Fed should have and were expected to raise rates many years ago but didn’t. Although I do not expect them to raise rates this year, I would not bet on it; and should they raise rates soon my expectations are that they would not be able to sustain the increase, much less build on it.
I have a good chuckle every time I read about someone shopping on Amazon. Reminds me of the good old days when there was a JC Penney catalogue for clothes and you could find windmills in the Sears catalogue. Big difference was that back then Sears and JC Penny made money. So how are Sears, JC Penny and Amazon doing these days?
I’ve been an investor/saver for over 30 years. During that time I recall the Fed falling out of synch with the debt markets on at least 4 or 5 occasions. My recollection is that the subsequent periods of time saw not only debt market upheaval, but also equities market upheaval to varying degrees This time around feels and looks much different to me. It looks much more politically driven, as well as ideology driven, which has resulted in the Fed being “completely” out of synch with what the debt markets should be. Add a runaway Treasury over the last 7 years, and you get a lethal economic concoction. Bernanke and Geithner have left the babbling Yellen holding the bag, but ultimately have left the American taxpayer, and investors/savers in a ditch (read a very deep ditch). I feel the invisible hand of Obama on the shoulders of all of these players. He will sail off safely into the sunset in 14 months (hopefull), and they will go down in history as having caused a massive deflationary spiral. Add the rise of the Yuan, and the Chinese strategy to become the worlds reserve currency, and you should brace yourself for a really long stretch of bad road.
And Past President will become only the 2nd worst president!
I wouldn’t worry about a deflationary spiral.All incentives are for continued inflation.Never been a country,in the history of the world,with a 100% fiat,politicized currency,that saw its currency appreciate.I wouldn’t bet we will be the first.
Our government is capable of unexpected moves. We all know that. But if they take steps to further damage the economy, wont the Democrats be acting in a way which will assure a Republican victory in the 2016 elections? I’m a novice at all this, but I can’t see the present administration doing anything of its own volition to compromise an already unstable situation?
Hi,
My thoughts on why retailer are looking so glum could it have anything to do with the flow of consumer money going to health care instead of retailers. I pay $7000.00 per year for health coverage that my employer used to provide for free. Looks to me like a cut in pay.
Why is anyone,that isn’t a major basket case,spending $7K a year on health insurance?If you’re rich enough and don’t need the money,go for it.But.if you’re rich enough,you should be able to self insure.That’s what I do.You can get substantial discounts off the super high list prices they charge.If you lead a healthy lifestyle,you shouldn’t need to “waste” this much on healthcare.This must be addictive.Even my cheapskate cousins are into this health insurance thing.
Could be that boomers are getting nearer retirement and saving more.Also,technology is making it easy to price compare,which isn’t a positive for retailer’s margins.Add in that Wall Street expects companies to expand forever.So,we get Walgreens on every other corner.They just closed one nearby store.
It is about jobs. It is about money. We are in a worldwide depression caused by the political elite. There is no such thing as a consumer based economy. That just means transfer of monies to the banks. Savings is not encouraged so there is nothing real to borrow for businesses to invest in new equipment. When the money is all transferred to banks, companies cannot give raises and the majority of the population (what you call consumers) have less and less to buy with. People on food stamps spend very little on Christmas. People without jobs like our young people still living with Mama and Daddy at 28 don’t spend money. We are in the end game and it is the fault of the Democrats and Republicans who shipped the jobs overseas and bailed out the too big to fail banks.
Michael, pathetic retail sales numbers are yet another canary in the coal mine…Look out below!!!
It seems to me that as long as interest rates stay at 0% people like me have no where else to invest. I do own Mining Stocks and Physical Bullion as well but we all know where those have been heading. I believe that as long as rates are this low, Stocks can at least help me stay even……..Mick.