Target Follows Walmart Down The Rabbit Hole Of Margin Compression

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In his Daily Market Notes report to investors, while commenting on Target, Louis Navellier wrote:

Target’s Earrnings

Two steps forward, one step back.

Yesterday’s impressive rally was accomplished despite a major disappointment in Walmart (NYSE:WMT) profits.  This morning, Target (NYSE:TGT) followed Walmart down the rabbit hole of margin compression, citing rising labor and fuel costs. The shares tanked 25% and have dragged down almost the entire retail sector. One exception today is TJX, a retailer who beat top & bottom and is up over 11%, albeit only a recovery back to March levels.  This was especially damaging in that Target was supposed to be shielded from the strong U.S. dollar as it is a domestic-only retailer.

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Q1 2022 hedge fund letters, conferences and more

Also being cited for today's weakness are comments from Jerome Powell wherein he repeated that the Fed will keep tightening until inflation trends have clearly cooled down.  Those comments yesterday afternoon caused a temporary market pullback but the momentum of the day pushed through it.

More than ever, evidence of peak inflation may be needed for a sustained market recovery.

Stick with the Strategy

Oil continues to rise while other commodities are softer today including gold. Crypto continues to wane with Bitcoin back below the important $30K level.

Interest rates are modestly softer with the U.S. 10-year at 2.95%.  The U.S. dollar is stronger on Powell's comments after pulling back for the last 3 days from an 18-year high. Volatility clearly remains high but pessimism is not spiking with the VIX still well below 30.

The strategy remains the same; reduce high valuation names on rallies and add quality earners on pullbacks. 

Coffee Beans

A majority of Chinese use grocery delivery according to a global survey, with 55 percent of respondents stating that they had done so in the past twelve months. The next biggest market for grocery delivery was the United States, where the practice became a pandemic pastime. More than a third of U.S. respondents said they had used grocery delivery in the past twelve months. Source: Statista. See the full story here.

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