Retail powers through a Delta slowdown: Morning Brief
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Monday, August 23, 2021
Delta might be hitting economic growth. Retailers aren’t feeling the pinch.
Last week, two main stories featured prominently for markets and the economy: data showing the economic recovery slowing down, and retailers reporting blowout second quarter results.
In the Morning Brief last week, we covered a slowing housing market, economists cutting their forecasts for GDP growth, and more commentary about the idea of “peak growth” in this recovery cycle. All of which followed an August 13 report on consumer sentiment that revealed a shocking drop in confidence in the early part of this month amid the spread of the Delta variant, and a pickup in inflation.
In the background of these developments, the stock market wavered. But a rally on Friday left the S&P 500 (^GSPC) roughly unchanged on the week, and within shouting distance of record highs. And a quick glance at my colleague Brian Sozzi‘s reporting gives us a window into the kinds of results retailers churned out that helped buoy investor confidence.
The week began with Walmart’s (WMT) earnings beating expectations, as executives told the Street the Delta variant wasn’t changing consumer behavior. Target (TGT) followed with a blowout quarter, and commentary that traffic to its stores hadn’t been slowing down in recent weeks.
But even as last week’s earnings rush moved away from bellwethers like Walmart and Target, the news remained upbeat.
TJX Companies (TJX), which owns TJ Maxx, Marshalls, and HomeGoods, reported second quarter sales that beat estimates, and said sales have been “very strong” in the early part of the third quarter. Results from Foot Locker (FL) also topped expectations, with the company reporting same-store sales that rose nearly 7%, against Street estimates for a more than 1% drop in the second quarter.
Even Macy’s (M), which has been a laggard in the retail space for years, reported a blowout quarter while raising its full-year guidance. It also reinstated its dividend after having cut that payout to preserve cash during the early days of the pandemic.
“Through [Thursday], sales are still great,” retail expert Jan Rogers Kniffen told Yahoo Finance Live on Friday. “Nobody’s talked about sales slowing down in August. People that did say anything about it said August was good.”
Kniffen added: “There is nothing wrong with the consumer from the point of view of the ability to spend or the willingness to spend. And so far, they haven’t stepped away from my kind of retail. [Consumers] may have stepped away a little bit from restaurants, but they’re showing no inclination to stop spending on discretionary retail, apparel, clothes, shoes. All that stuff is going really, really well.”
And so just as we’ve seen financial markets rotate through leadership groups over the last year, we see consumer spending — the driving force of economic growth — rotating from staying at home, to traveling and dining out, and now towards stocking up ahead of the school year.
A trend that seems to be enough for investors to rally behind.
What to watch today
8:30 a.m. ET: Chicago Fed National Activity Index, July (0.11 expected, 0.09 in June)
9:45 a.m. ET: Markit U.S. Manufacturing PMI, August preliminary (62.3 expected, 63.4 in July)
9:45 a.m. ET: Markit U.S. Services PMI, August preliminary (59.2 expected, 59.9 in July)
9:45 a.m. ET: Markit U.S. Composite PMI, August preliminary (59.9 in July)
10:00 a.m. ET: Existing home sales, month-on-month, July (-0.5% expected, 1.4% in June)
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