Bespoke’s Morning Lineup – 5/18/22 – Retail Wreck

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“Inflation is a form of tax, a tax that we all collectively must pay.” – Henry Hazlitt

Morning stock market summary

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This week the tax of inflation is being felt most by retailers as two of the nation’s largest retailers have gotten absolutely destroyed in the last two days. Futures are indicated lower this morning, but one could make the case, given the plunge in Target (TGT) shares this morning, that it could even be worse. Oil prices are also trading up close to 2%, the ten-year yield is back up to 3%, and the dollar is trading lower.

On the economic front, we’re about to get the latest updates on Housing Starts and Building Permits for April, but if mortgage data is any indication, the data isn’t likely to be very strong.

In today’s Morning Lineup, we recap the continued developments in retail earnings (pg 4), market action in Asia and Europe (pg 4), economic data in Asia and Europe (pg 5), and a lot more.

If you thought yesterday’s 11% pounding of Walmart (WMT) was bad, meet Target (TGT). After reporting significantly weaker than expected earnings on better than expected revenues, shares are trading down more than 20% in the pre-market. The company blamed ‘unexpectedly high costs’ that it faced throughout the quarter for the earnings miss, and didn’t provide much additional detail in its release.  Investors aren’t waiting for further clarity, though. With margins falling more than 400 basis points (bps), the stock is trading down more than 20% in the pre-market and is easily on pace for not only its worst earnings reaction day in at least 20 years, but also its worst one-day drop since the 1987 crash.

Yesterday, WMT had its largest one-day decline since the 1987 crash and now TGT is on pace to do the same!  The experiences of both companies further reinforce the point that we are operating in one of the most complicated macro environments that any company or investor has had to deal with.  Few companies are so entwined into so many aspects of the US economy as WMT and TGT, and their logistics and supply chain operations rival or exceed those of most other companies.  If they’re having these types of issues keeping up with the rapidly changing environment, who isn’t?

Target (TGT) Daily Performance

Walmart (WMT) Daily Performance

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Bespoke’s Morning Lineup – 5/10/22 – Turnaround?

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“It always seems impossible until it’s done.” – Nelson Mandela

Turnaround

Below is a snippet of content from today’s Morning Lineup for Bespoke Premium members.  Start a two-week trial to Bespoke Premium now to access the full report.

It’s been a painful three days for US equity investors, and they’re looking to catch a break today as S&P 500 futures are indicating a rally of about 1% at the open.  Investors have been fooled enough times this year already by a strong tape at the open, so you can’t fault them for viewing this morning’s rally with a fair amount of skepticism.

Treasuries are also rallying this morning as the 10-year yield is back below 3%.  The only economic news on the calendar this morning was the NFIB Small Business Optimism report which was unchanged from March and slightly ahead of expectations.

Over in Europe, economic sentiment came in better than expected whole Industrial Production in Italy managed to come in unchanged versus forecasts for a decline of 1.9%.

In today’s Morning Lineup, we recap the recent developments in stablecoins (pg 4), overnight earnings (pg 5), economic data out of Asia and Europe (pg 6), and a lot more.

After breaking below support to close last week, the bottom fell out of the Nasdaq 100 yesterday as the index dropped to another 52-week low and its lowest level since November 2020.

QQQ Turnaround

With the Nasdaq 100 at 52-week lows, we wanted to check in on its valuation and how it looks relative to the S&P 500.  The chart below shows the historical premium in the Nasdaq 100’s P/E ratio relative to the S&P 500. For the last ten years, there has never been a point where the Nasdaq 100 traded at a cheaper valuation than the S&P 500, and the average premium during that span has been 23.1%.

Towards the end of 2019, right before COVID, the Nasdaq 100’s premium valuation to the S&P 500 was right in line with its historical average, but that premium exploded higher during COVID reaching as much as 50% in late 2021.  Through a combination of earnings growth and rapidly falling stock prices, much of the air has come out of the Nasdaq 100’s premium relative to the S&P 500, but it still remains elevated relative to the historical average.

NDX Price to Earnings Ratio

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