Consumers cautious...but retail stocks surging
Inflation and higher interest rates are taking a bite out of spending. Still, some beaten down retailers reported results that weren't as bad as feared.
Several big retailers reported earnings this week. Many of them issued muted outlooks for the fourth quarter, but that didn’t seem to matter to Wall Street. The SPDR S&P Retail ETF is up more than 6% in the past five days. Shares of Target, Macy’s and Gap all soared even more than that following their results.
Are consumers still shopping until they drop? Not necessarily. Sales haven’t been great. But many retailers are doing a better job of managing inventory and keeping costs down. Hence, the better-than-expected earnings.
It’s not clear if the cumulative effect of the Federal Reserve’s interest rate hikes from last year and much of 2023 will finally put an end to this spending spree. It’s worth noting how cautious Walmart and TJ Maxx/Marshalls owner TJ Maxx in particular sounded during their latest earnings releases and calls. The government also reported earlier this week that retail sales for October were down from a month ago. That’s another potential sign of consumer fatigue.
So even though a handful of retail stocks are skyrocketing this week, keep in mind that their results are still fairly weak. This may be a classic case of what’s good for Wall Street not necessarily being good news for Main Street.