This morning we had Walmart ($WMT) and Home Depot ($HD) report earnings. We also had the existing home sale report. None of these were positive indicators for the strength of the consumer in the United States. The market did not react well to this news and it begs the question, was this recent bull run really a bull trap?
Retail Full-Year Guidance
While both Walmart and Home Depot did report higher than expected earnings for this most recent quarter, both of them did lower their full year guidance. This lower guidance could be taken as a sign of the weakening consumer and was the point most investors seemed to focus on. Walmart and Home Depot are titans among retailers and if they’re forecasting less consumer spending people might be inclined to listen.
Home Depot and Walmart are just the first of major retail earning announcements this quarter. Target reports on the 28th and Kroger reports March 2nd to name a few more coming up. We will see in due time how other retailers compare.
Home Sales Decline
Existing home sales also declined last month, down to 4 million. This missed the estimated 4.2 million which was already down from December. As the Federal Reserve raises the target rate, mortgage rates have started climbing again. These rising rates are killers for housing demand, potentially the largest victim of the aggressive rate hikes. Inventory has increased with dwindling demand and the average time on the market has rose from 29 days in December to 33 days.
More Hikes Coming Up?
These negative revisions might be the start of the “pain” the Fed chair Jerome Powell said he would look for before he pauses and/or pivots the rate hikes. On the contrary, consumer spending has continued to climb albeit more slowly recently, in the face of declining money supply. As long as the consumer appears healthy the Fed will feel empowered to aggressively pursue inflation with higher and prolonged rate hikes.
Although these forecasted earnings might not be enough to change Powell’s stance. Powell has said he does not care about the stock market as long as inflation is running as high as it currently is. So we might have to wait until these earning revisions come to fruition.
Bulls Retreating?
The last couple days have broken an upwards channel that we’ve been in the past six week. It might indicate a return to the downtrend we were in last year. If this were to happen it should not be too big of a surprise considering the Federal Reserve has not changed their position much since the hikes began.
There has been a disconnect however between what the market is pricing in as far as rate hikes go and what the Fed has said what they plan on doing. I’ve read many academics suggest that the stock market could continue to move irrespective of monetary policy. This is another potential outcome, we’ve seen an increase in volatility over the past couple years. Everything from the GameStop incident to the rise of 0DTE options could suggest the psychology of the market might be changing. Change is a natural part of life after all.
Whether the bulls will party on or fear is back in full force one thing is certain. You can always find more news updates and finance definitions on our TikTok page. You can also click below to schedule a free consultation with us to see if you’re on pace to reach your financial goals or how the macroeconomic conditions might affect your portfolio.
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