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Retail Sales Unched on Headline; Target (TGT) Misses in Q2

Wednesday, August 17, 2022

This morning, the latest read on monthly inflation is out in the form of July Retail Sales results, which were flat (0.0%) month over month, lower than the downwardly revised +0.8% for June (which had been the biggest surge higher since January’s +2.7%, when post-holiday shopping spent the last of the retail momentum in this cycle). This is a welcome sign that retail inflation has come down month over month, even lower than the +0.1% expected.

Stripping out high-priced motor vehicle sales, which can distort the headline figures on a monthly basis, came in ahead of expectations at +0.4%, half a point lower than the downwardly revised +0.9% for June but still stronger than anticipated. Ex-autos and gas, this figure goes up even further, to +0.7%. Finally, the Control number, which gets plugged into other inflation prints over time, was highest of all, at +0.8%.

Thus, while inflation looks to be quieting on the headline front, we can still see higher prices in the underlying metrics. This won’t do much to persuade the Fed to lower interest rate hikes when they meet a roughly a month from now, and this shows up in pre-market trading: the Dow is -238 points at this hour, the Nasdaq is -137 and the S&P 500 is currently -38 points. These indices were only slightly less in the red prior to these Retail Sales results; the market is still in a giving mood after ramping up to new seasonal highs yesterday.

Fed Presidents have made their opinions clear of late, in public statements discussing its upcoming monetary policy meeting. St. Louis Fed President James Bullard — among the most hawkish of Fed voting members — expects rate hikes will be coming in “higher for longer.” Neil Kashkari, the Minneapolis Fed President, said Fed rate cuts next year are “very unlikely.” San Francisco’s Mary Daly very frankly stated, “Markets are getting ahead of themselves.”

This doesn’t look like the Fed has been convinced to take their foot off the tightening pedal just yet. Fed minutes from the last meeting are due out at 2pm ET today, but there aren’t many mysteries to decipher here. We expect to hear even more Fed opinion when the Jackson Hole summit commences in a week and a half. Like today’s Fed minutes, we expect only granual levels of articulation on monetary policy.

Target TGT posted its Q2 earnings results, which disappointed expectations: earnings of 39 cents per share came in well short of the 71 cents in the Zacks consensus, while revenues of $26.04 billion was marginally down from the $26.16 billion expected. The big-box retailer has decided to take the hit on inventory reduction, which had blossomed to $15.32 billion in the quarter, and this has helped the stock fall nearly -3% in today’s pre-market. But Target will likely be setting itself for a stronger second-half of 2022.

The TJX Companies TJX was mixed in its earnings report this morning, beating by 2 cents on the bottom line with earnings of 69 cents per share, on $11.84 billion in sales which came up -1% short of expectations. Investors were perhaps looking for the discount retailer to put up stronger numbers like those seen at Walmart WMT yesterday, but TJX — the parent of T.J. Maxx and Marshall’s — fell a tad short. For more on TJX’s earnings, click here.

Home improvement retailer Lowe’s LOW was also mixed in its Q2 results this morning, beating by 4 cents on its bottom line to $4.67 per share, while quarterly sales came in at $27.48 billion, a drop of -2.55% from the Zacks consensus. Yet even with a notable drop in comps, LOW shares are trading up marginally in today’s pre-market. For more on LOW’s earnings, click here.

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