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Stocks Fall This Week; Fed Minutes Suggests Shift in Rate-Hikes, Retail Earnings, Meme Investors Get Burned

Friday, August 19, 2022 04:14 PM | Nick Dey
Stocks Fall This Week; Fed Minutes Suggests Shift in Rate-Hikes, Retail  Earnings, Meme Investors Get Burned

Stocks rose during the beginning of the week but soured as the week went on, eventually erasing the early gains.

Meme stocks were all over the place this week as Bed Bath & Beyond (BBBY) soared beyond comprehension. Before, of course, plummeting late in the week. Bed Bath & Beyond reached as high as $28.04 on Tuesday, before falling all the way to $10.91 - below Monday’s open.

The big story out of this retail rally is how it provided billionaire Ryan Cohen with the perfect escape route from his investment in the debt-ridden company. This liquidation, right during a rally led by retail investors, upset his WallStreetBets following.

Retail investors feel as though Cohen used them, after he amassed such a large following by the community, arguing that he helped fuel the gamma squeeze by filing an amended ownership 13-D one day before filing his intent to sell. The amended ownership form showed his position as “unchanged”, which may have fueled optimism that he leveraged the next day with his intent to sell.

Memes aside, it was a busy week with Fed minutes, retail sales and earnings, and a housing update

Fed Minutes

The minutes from the most-recent Fed meeting showed that FOMC members are aware of the risk of an overtightening and heightened risk of entrenched inflation.

“As the stance of monetary policy tightened further, it likely would become appropriate at some point to slow the pace of policy rate increases while assessing the effects of cumulative policy adjustments on economic activity and inflation.”

Obviously, the “when” is less than specific. Which, makes sense as it is a decision to be made in an evolving environment. However, it could create a “will they won’t they” that even sappiest Rom-Com envies as every economic indicator will be closely followed and speculated on for its ability to sway the  pace of rate increases. This, of course, points to the potential for volatile days to come.

According to CME Group, Fed funds futures data suggests  investors are mostly favoring a 50 basis point hike at this time around.

Retail

This week had a lot going on for investors in the retail industry, with monthly retail sales and a plethora of retail earnings reports to mull over - including Walmart (WMT), Target (TGT), BJ's Wholesale (BJ), TJX Companies (TJX), and Kohl’s (KSS).

Retail Sales were mixed, with the headline figure staying steady and missing estimates for a 0.2% rise, while the figure excluding auto sales rose 0.4% against expectations for a 0.1% rise. This indicated consumer spending remained strong in July, likely helped by waning oil prices.

Meanwhile, retail earnings weren’t the greatest. Walmart had one of the better reports, beating estimates and providing upside guidance. Walmart noted that it made good progress at reducing its inventory through sales and that inflation continues to eat away at discretionary spending.

This set the stage for the rest of the reports. Target noted similar pains, and notably opted to clear its excess inventory at a quicker pace. This led to a wider miss and pushed operating margins to 1.2%. However, the company argued this was the right path for the long run as the old inventory would have held the business back over the long run as sales floors are filled with older and out-of-fashion products.

BJ’s Wholesale had a solid beat and raise as the wholesale-value retailer continues to dominate as inflation forces consumers to seek cheaper alternatives. Similar to Costco (COST) and Walmart’s Sam’s Club, BJ’s offers discounted gasoline to its members, likely contributing to the 6% rise in membership during the quarter.

Lastly, TJX Companies and Kohl’s told two different stories. TJX, an off-price retailer, showed strong apparel comps - which got offset by the company's home goods department. Meanwhile, Kohl’s showed declining apparel sales as consumers are focused on deals.

All told, stocks fell this week. The S&P 500 lost 1.21%, while the Nasdaq dropped 2.62%. The Russell 2000 fell 2.93% and the Dow edged lower by 0.16%.

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