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How healthy is the American consumer? Everyone on Wall Street is wrestling with that question — and we got two starkly different portraits from today’s key retail earnings reports.
On the one hand, the retailing giant Wal-Mart Stores (WMT) just reported quarterly earnings of $1.08 a share, a sharp decline from $1.21 a share in the year-earlier period. That missed analyst forecasts.
Revenue also barely budged to $120.2 billion, and the firm warned that full-year profit will come in light. Wal-Mart blamed everything from the strong dollar to wage hikes in the U.S. to higher theft rates.
On the other hand, home-improvement retailer Home Depot (HD) gave its shareholders a reason to smile. The company reported $2.23 billion, or $1.73 a share, in profit in the fiscal second quarter. Stripping out two cents in unusual items, you get $1.71 – slightly above Wall Street forecasts.
Revenue of $24.83 billion also beat forecasts. Plus, the company said full-year sales will rise as much as 6% while profit will climb as much as 14%. That 2015 outlook came in hotter than expectations, with online sales and increased sales per location helping to boost results (versus gratuitous new store openings). It also just purchased the building and maintenance supply company Interline for $1.6 billion.
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| Home Depot is benefiting from the home-renovation trend. |
What happened in response? Shares of Wal-Mart dropped 3.4% to a fresh 30-month low. Shares of Home Depot rose 2.6%Â to a fresh all-time high. Talk about a huge split between winners and losers!
It seems clear to me that Home Depot is benefiting from the gradual, two-steps-forward, one-step-back, recovery in housing. For example, we learned today that housing starts rose 0.2% to a seasonally adjusted annual rate of 1.21 million in July. That was the highest since late 2007.
A resurgence in multifamily construction, and the rise of investor buy-to-renovate-then-rent activity, is also helping the company. That’s all part of the “Renter Nation” trend I wrote about last month.
But Wal-Mart doesn’t focus on housing-related expenditures. It sells a little bit of everything, and it tends to serve lower-and-middle-income Americans. They’ve been left behind in this economic recovery. Unless and until they see meaningfully higher wage growth, Wal-Mart is going to struggle to rack up better sales and profits.
So it really depends on which American consumers you’re talking about. Those at the higher end of the income spectrum, and those who are looking to buy, renovate, or furnish homes, are feeling flush and spending like it. Those at the lower end of the scale, who are struggling to make ends meet, are also spending like it.
I think we need to see everyone pulling together for it to be a bullish sign for U.S. markets and the U.S. economy. And frankly, I’m just not seeing it. So you can add the latest retail earnings to my long list of concerns about stocks.
| “It really depends on which American consumer you’re talking about.” |
That’s my take. But what’s yours? What’s more convincing to you – the bullish story told by Home Depot or the bearish one told by Wal-Mart?
Is the American consumer healthy, and should you bet on America’s economy? Or is he or she struggling, and should you take a more cautious approach to investing as a result? Be sure to voice your opinion over at the Money and Markets website.
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Stocks have been marking time the past several days, with the major averages continuing their pattern of treading water since the beginning of 2015. But many of you appear to believe this won’t continue, which is generally in line with my own views.
Reader J.T.A. said: “I appreciate your letters and insight on the economy. With most of the economic news so negative worldwide, this is the time to be very cautious.
“I have been planning all year to reduce my equity holdings and am waiting for the signal from you before I do any more investing. I plan to go to 100% cash in my IRA by mid-September, if not before.”
Reader Donald L. also weighed in, saying: “The ‘market’ (however you define it) went up for the past five years despite all the various measurement indices of the economy saying the contrary. The triumph of hope over fact ignored the 800 pound gorilla in the room – government policies at all levels.
“Will the forthcoming elections bring relief? Sorry, but I’m betting with those buying put options and negative indices.”
Reader Mule said he’s worried about where stocks head from here too: “I don’t think the market has climbed the old ‘wall of worry’ so much as it has rode a wave of cheap worthless debt money, in spite of continuous negative real economic data. When the worthless paper balloons burst, look out below. The ‘wall of worry’ will get buried.”
But Reader Gary took a slightly more optimistic bent, saying: “Buying great Blue Chip companies will always make you a winner long term. Try Boeing (BA).”
Thanks for sharing. Personally, I see a world where economic growth is rapidly decelerating in many countries … where manufacturing and multinationals continue to face challenges here … where many domestic stocks are underperforming the misleading averages … and where many global stocks are in full meltdown mode.
That’s not exactly fertile ground for huge stock market gains. It’s more likely the kind of environment where a “trap door” could open up at any time, and where caution makes the most sense to me.
Meanwhile, on a different topic, Reader Etoleary said: “The ‘Donald Trump Effect’ that is the non-specific anger of large numbers of our citizens is more broadly based than simply the Republican primary candidates. This to me is becoming a generic sort of index of frustration. Someone should figure out a way to quantify this.”
I appreciate your comments, too. There definitely seems to be dissatisfaction with mainstream politics right now, and it’s leading to a backlash against mainstream candidates. The key question is whether Americans actually vote in large numbers for alternatives like Trump or Bernie Sanders, or stick with what they know at the ballot box (despite their stated discontent).
Did I cover your comments to your satisfaction here? Do you have any more that you’d like to air out? Let me know over at the website when you get a chance.
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Chinese stocks resumed their descent overnight, with the benchmark Shanghai Composite Index tanking 6.2%. Almost 6 out of 10 listed stocks dropped by their 10% daily limit amid questions about how much government support will be thrown at the market, how weak the underlying economy is, and how much money investors on margin will yank out of stocks.
Thai police are searching for an unidentified man who apparently left a backpack bomb under a bench near the Erawan Shrine in Bangkok. The bomb exploded later, killing at least 20 people in the heavily trafficked area. The country has been facing political turmoil, religious infighting, and other domestic unrest for the last few years, making for a long list of potential perpetrators.
Speaking of long lists, the one with the name of troubled emerging market nations has Brazil close to the top. The country is experiencing the worst turmoil in decades, thanks to rising unemployment, surging inflation, a collapsing currency, and a major political scandal that could lead to the resignation of President Dilma Rousseff.
The iShares MSCI Brazil Capped ETF (EWZ) has lost a whopping 46% in the last year. In fact, it just undercut its panic low from late 2008, putting it at the lowest level in more than a decade.
Lastly, the first two female soldiers in history are graduating from the U.S. Army’s rigorous Ranger School. Soldiers who apply to be Rangers face two months of intense mental and physical training, grueling hikes, sleep deprivation, and more. However, the soldiers won’t yet be able to join front-line infantry regiments because the Army has not opened them up to full female participation yet.
Any thoughts on the latest turmoil in Chinese markets, or Brazil’s? What about the latest bombing, or this milestone in the development of the U.S. Army? Share your comments over at the website when you have a minute.
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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Regarding female Army Rangers: It is a fact that males are ‘hard wired’ (can’t be changed) to protect females. No female should EVER be in a front-line position because it would endanger the males who could get killed trying to “protect” them. It would be “politically “correct” lunacy to do so.
Hi JS I agree with you,males will think kill the f/////r,where the female would probably think its somebodies son,war is not for the faint hearted,dog eat dog,at war forget God,He is too busy some where else.
Females in the front line should be issued suicide pills. They know what will happen to them if they are ever captured, and it won’t be pretty.
Mike , I agree there are two different customers / buyers in your example of Walmart and Home Depot . I think it would be enlightening to see how these different customers pay at the cash register .. I have no proof of this theory , but I think that the Walmart customer pays with cash or a form of cash and the Home Depot customer pays with debt … If so , it will be interesting to see which customer runs out of buying power first…Lastly ,did you notice in the recent report that Permit Applications for future housing are significantly lower than anticipated.?.. Hummm..
You could be on to something Frank and yep the steep drop in building permits is noteworthy.
Agreed. If so then there is no real mystery. For as an ever growing number of middle class homeowners come under financial pressure to become debtor “do it yourselfers”, the “cash” producing jobs they once provided for many of those Walmart regulars with little or no credit seem to be vanishing in a reciprocal manner.
unfortunately, we, the voters, re-elect 90 percent of our congress. i don’t think a third party would help, including the donald. but i do see every ones frustration. the simple fact is, if congress wanted to balance the budget, they would balance the budget. and on the economy, i do not see the younger generation replacing the buying power of their predecessors. i hope i’m wrong.
If a “viable” third party reaches 15% representation they become brokers of legislation. If a 3rd party reaches 33 1/3% they’re as good as anybody.
As a sophomore student taking my first Economics 101 course, we learned that the cause of the Great Depression was NOT the 1929 stock market crash, but the fact that tiiioo much money became concentrated into too few hands. With income and wealth inequality as bad or worse now than it was in 1928 and the fact that 90% of the anemic economic growth since the 2008 Meltdown has gone to the top 1%, only the facts that the dollar is the world’s reserve currency (for the time being) and the Fed’s injections of monetary “EMT saline solution” into the collective economic “body” has kept it from going into fatal shock. But the Fed’s ambulance is parked outside the Capitol Hill fiscal policy emergency room awaiting the patient’s admission for the theraputic redistribution of income and wealth resuscitation of its circulatory system and ability to heal and return to full productivity (and the needed resumption of its ability to again pay taxes)!
That “Fed Ambulance” has, since its very inception, been no more than a hearse in disguise.
One major factor that I didn’t see discussed was the relatively new merchandising giant, Amazon. People, including myself seem to have discovered how convinent shopping on- line can be and how efficient this is. You don’t have to wait long to receive your order, and to avoid the crowds at Walmart in the checkout and blocking the aisles in the shopping areas is terrific.. Home Depot really doesn’t really have that much of this sort of competition. Thanks, Pam
True enough. I seldom go to Target or Walmart anymore, except for convenience and speed. Amazon has most things I want.
What I’m seeing is too little attention to the market shifts. Very often, the problem lies in the question. In the current case: Now I’m buying most of the goods that I previously bought at Walmart, Staples, Radio-Shack and Best Buy via Amazon Prime, directly shipped to my front-door. Fast shopping, better prices, easy exchange, no extra time or gas involved. Those stores now receive less than 10% of the purchases I would have conducted at their locations two years ago. The word goes around, and the money will follow. On the other hand, goods that I typically bought at HomeDepot or Lowes only suffer a marginal impact from my changing shopping habits. It has nothing to do with my purchasing power or “consumer confidence”. So, THINK AGAIN!
Regarding the Walmart versus Home Depot earnings and stock price differences: it fits like a glove. Half of Americans have been getting hammered by the economy for about 10 years now, the other half is making good money. Thus, poor-people-Walmart down, rich-people- Home Depot up. All can be traced directly back to government policies – too much government and too many wrongheaded policies in a nutshell. Peter Bern
I am sorry to say, from what I have observed and the great numbers needing government assistance, that across the board most businesses will be lucky to be able to just maintain. Because the majority and typical citizen – across the board – do not have any extra money to spend after paying their basics. Seeking and demanding minimum wage increases, WILL NOT solve the average person’s income problem, actually it WILL just make matters worse. Most businesses are already tight, and will have to raise their prices in order to stay in business, and this just continues the never ending cycle. The cycle being, some might be able to break even after increased minimum wages, while many MORE will be pushed into poverty because prices went up while their wages did not. Minimum wage, not answer.
The answer is, bringing the jobs back, doing everything possibly can do within the US; and that would give investors plenty to invest in, plus bring the old US standard of living back.
As it is, US wages are actually going down across the board because of foreign countries paying their labor less then a $1 an hour; and US policies and laws that encourage businesses to leave the US, to result in current conditions. Those doing well, to get a feel of what I am saying, should get an old car and drive around US big city downtown areas in the evening or mornings to see the homeless on the streets; NO, most are not dead beats.
Your observations are fairly accurate. With 92 million not working and 49 million on food stamps we have really backed ourselves into a corner. You are right, there is no way these folks are all deadbeats, but how are we going to retrieve 40 or 50 million jobs? We have gotten way past the finger pointing stage, trying to lay blame for our mess. If we don’t concentrate on bi-partisan solutions we may never recover our great way of life. I think this explains the “Trump Effect”. People are desperate for solutions, R or D. They see our prosperity slipping away and our leaders seemingly unable or unwilling to stop it. There will be some bitter pills to swallow and I have to wonder whether or not we are up for it. Americans have always been at their best when faced with a crisis. We had better show our stripes soon or we will be living in just another Third World nation. Jim
Mike, yes, the Wallmart/Home Depot situation makes perfect sense..But here is the REAL problem…Walmart’s business is NOT going to pick up any time soon because of what you state…makes perfect sense…However Home Depots business WILL NOW PEAK as well as this boomerang housing recovery runs it’s course for many reasons..many of which are covered by Larry Edelson..So, the problem is that Wallmart will NOT pick up to Home Depots level, it is Home Depot that will now lower to Wallmart’s level as global deflation takes hold among MANY other things..
The economic divide in this country is taking its toll without question and the stock market should take note accordingly. I refer to the concept that I call frozen capital. When a rich person makes an extra dollar it typically becomes part of a bigger pile of frozen dollars which does little to improve the economy. Wage growth for the common man is abysmal, especially when you take into account how the rising cost of health insurance saps whatever wage growth there is. Economic growth has become an illusion and the hope of the common man is getting crushed. When you crush the hope of the common man everyone loses. It is a LOSE/LOSE proposition over time.
Obviously none of the financial gurus or TV talking heads know what the economy will do. I am staying nimble and diversified. I am an options trader and somewhat successful in doing credit spreads. My time line for the market is 30 to 90 days max. I got completely out of stocks about 2 years ago. I have decided to take out some insurance against the collapse of paper money and potential currency wars in the form of call leaps on selected gold and silver ETF for Jan, 2017. I wouldn’t place much money on the trade but if gold went back to its 2011 level selected call leaps could yield 2000% profit. It is worth a couple of dollars to me to buy that kind of insurance. I sure wouldn’t bet the farm!!
If a woman can do the job then give her the job. No affirmative action crap. No favoritism. All I can say is that I am glad that I am no longer in the military. Favoritism and affirmative action and other such foolish social experiments caused me to leave the service after 11 years and 3 tours in Vietnam. The military must follow orders and has been the testing ground for all kinds of foolish social engineering. I hope that they have their heads out of their butts on this one.
Tom
Sorry Mike. I believe the imbalance you site is clear proof that people with assets (i.e. homeowners) are being squeezed into improving their homes to accommodate: a) Making the most of what they currently own. b) Children (of all ages) now out of the workforce & returning home for shelter. c) Expanding structure for rental space. d) Improving curb appeal for potential sale of said asset in advance of foreclosure, etc. Main Street is being squeezed for every last dime as our political elite (of all political persuasions) & the revolving door regulatory bureaucrats they appoint continue to recklessly steer the ship of state onto the rocks of insolvency.
We now encourage corporate & GDP calculations that have dismissed mark to market accounting principles & rather transformed inventory, intellectual property & R&D from cost to benefit. Unemployment reporting now dismisses the plight of almost one third of the U S workforce & virtually all market “beats” are based on radically lowered expectations. Considering just this very short list, how can we possibly see this reporting as any thing more than the peddling of “perception”.
I understand that you are in the business of selling optimism. However, any description of this economy as “two steps forward & one step back” is clearly based on the incorrect assumption that our obviously “seasonally adjusted”, “goal seeked” ArimaX15, “beats expectations” numbers in any way reflect reality.
I think that Walmart is suffering for two reason: yes, labor costs have gone up, but people don’t want to shop there as often as they used to. Employees to help you are scarce. The aisles are full of pallets of items that aren’t shelved. Produce isn’t always stocked. They don’t carry many gluten free products, and that makes a difference in our home. Yes, the prices are great but if you aren’t sure it’s stocked, if you have to maneuver slowly around the pallets in the middle of the aisles, if it’s so understaffed that it’s dirty and help is unavailable, why wouldn’t you shop somewhere else?
More proof positive that it is only the 1% that are benefiting from all this “free printed fiat money”.
The other 99% are worse off than ever..and you can’t grow an economy and build a country’s wealth with only 1% buying things… I’m watching the charts for the final signs that the bubble is bursting to short this big time. and I’m saying final signs because all the preliminary ones have already lit up.
In my experience it is harder to deal with purchases, returns, etc. using Wal Mart’s online presence,….. Home Depot makes it all easy.
this could be a factor.
ddes
Your thoughts hit the bullseye. I rent houses and just purchased another rather than stay in the market or cash. Workers I hire really need jobs so they fit into our plans and schedule. I also help the needy through a local food distribution. The area food bank has drastically reduced amounts of food available for sale to our agency. The needy are suffering most!
In my part of the country, what I’m seeing on television ads for autos is 1) more ads for leasing that for buying 2) ads for no money down when you buy 3) 60 month or 72 month loans that are interest free 4) $1000 up to $2500 bonus if you buy now
Now how in the h#ll can an auto maker offer such prices when everyone knows that the banks are NOT going to lend money at NO interest for several years. That tells me that those auto makers have to be footing all those finance charges. Sounds an awful lot like 2009 all over again. We’ll have to wait until the Q4 reports really spill the beans.
want money help
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