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“He who moulds public sentiment goes deeper than he who enacts statutes or pronounces decisions.” – Abraham Lincoln

Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.  

Between the 10%+ rally in shares of TGT and last week’s 6%+ rally in Walmart (WMT) in reaction to its earnings report, it’s hard to get too concerned about the health of the US consumer.  Yes, these are more anecdotal observations than quantitative, but they’re also two of the largest retailers in the country,

Let’s start with TGT. The chart below shows TGT’s historical performance on its earnings reaction days since 2002. With the stock trading up over 10% in the pre-market, today would be the third time in the last four quarters that the stock had a double-digit positive reaction to earnings. Since 2002, there have only been seven times when the stock had an earnings day reaction of more than 10%.

Regarding TGT’s stock performance, it had been ‘on sale’ for months heading into this morning’s report, but based on where the stock surged to in the pre-market, the downtrend from the spring high has been broken.

Looking back to WMT’s report last week, the stock’s 6%+ rally was the first time in at least 20 years that it experienced back-to-back earnings reaction day rallies of over 5%, and those two one-day rallies were the fourth and fifth best earnings reaction day performances since at least 2002.

Unlike TGT, which had been under pressure heading into today’s report, WMT’s chart has been more of a one-way move to new all-time highs. WMT’s strength could be construed as a sign that consumers are trading down due to a tough economic environment, but the company made no such comments in its conference call last week. CEO Doug McMillon flat-out rejected that idea when he said “So far, we aren’t experiencing a weaker consumer overall.”  CFO John David Rainey reiterated that point when he said, “Each of the months of the second quarter were relatively consistent… Even in the first couple weeks of August here, things have been remarkably consistent.”

Turning to retail stocks in general, it’s been a rangebound summer for the sector. The chart below shows the performance of the SPDR S&P Retail ETF (XRT) which tracks the performance of retailers on an equal-weighted basis. After a strong rally of over 30% off last fall’s lows, the ETT stalled out just under $80 before the broader market corrected in the spring. Since then, XRT has made four additional attempts at breaking through the $80 level but has been stymied each time. TGT’s rally this morning will provide a boost to the sector, but it’s going to take more than that to get it over the hump.

On a longer-term basis, that $80 level in XRT represents an important level, and if and when it can finally break through that resistance, a run to the post-COVID stimulus-fueled highs would be the next level to watch for.

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