Retail surge fuels market rallies as WMT dominates, but will housing data cool the hype?

• Retail Sales explode higher.

• WMT Blows the house off the foundation.

• Stocks rally, Bonds fall, Oil up, gold down.

• Housing and Building Permits today.

• Try the Pork Cutlet Milanese.

Retail sales – which was the BIG number to watch yesterday – blew the estimates out of the water (consumers flock to WMT – see below)….Top line came in at +1 full % vs. the expected estimate of +0.4%,  Ex Auto’s and Gas – it came in at +0.4% vs. +0.2%..... In addition, Initial Jobless Claims fell by 8k claims at 227k while Continuing Claims registered 1.864 mil down 6k claims….

So, traders and algo’s loved this news…. while conveniently ignoring weakness in the Philly Fed Business at -7 vs. last month’s +5 and Industrial Production of -0.6% vs. last month’s +0.6%.  (They ignore it because it doesn’t fit the narrative that they want.)

WMT reported and they not only blew the roof off the house, but they blew the walls and windows right off the foundation ….as some analysts said – they ‘checked all the boxes’ – the stock rose by 8.4% in early trading only to end the day up 6.6% at $73.18…Leaving a 6 pt gap between the close on Wednesday at $68.66 and Thursday’s opening print at $74.12.  The beat on earnings, they raised forecasts, etc.…but the headlines say it all….

“Walmart lifts full-year outlook on Bargain Hunting Shoppers.”

“Walmart grows more optimistic about 2024 as Bargains prove a Powerful Lure for the Inflation Weary”.

Remember – WMT operates ‘discount stores and supercenters. They offer the complete range of merchandise: food, apparel, appliances, electronics, musical instruments, home improvement, jewelry, pharmaceuticals, automotive tools and the list goes on – and they offer all of this at DISCOUNT PRICES… What does that tell you about the state of the consumer?  They are exhausted……

Don’t get me wrong – WMT is a behemoth!  They run a great business, it is a core holding in so many portfolios – besides the Walton Family that is the biggest shareholder at 3.6 billion shares - they count Vanguard, Blackrock & State Street as the top 3 asset managers in terms of holdings – but the list is long, very long – It’s just one of those names that everyone owns…and it’s not ‘sexy’ by any measure but it is a consistent player – it falls into the ‘defensive’ sector that we’ve been talking about for weeks now.  And I bet you didn’t know that this ‘boring’ defensive sector stock is UP a whopping 40% ytd…. not so bad, right?   

On the back of all this – swaps traders are now reducing their bets on how aggressive the FED needs to be….remember – last week they were calling for jumbo cuts (think 75 bps to 1%) at the September meeting (while some were screaming for an ‘emergency meeting’ not wanting to wait until September. And as of yesterday – the bets are coalescing around the 25 bps cuts that the FED has been talking about all along.

Bond prices fell and yields rose as the nervousness and angst fades…the TLT fell by 0.8% while the TLH lost 0.9%.  the 2 yr. is now yielding 4.05% while the 10 yr. is yielding 3.88%. 

Oil rose by 1.4% to end the day at $78.09 on guess what?  ‘Renewed enthusiasm around the US economy’!  Suddenly the whole China story wasn’t relevant yesterday – again because it didn’t fit the narrative…right?  The narrative yesterday was about focusing on the good news and pushing the negative news to the back. And that is what they did to oil yesterday.  Yesterday’s retail sales reports suggests that the US economy is just fine….and if that’s the case then energy demand is not going away…. but remember – energy is not a want – right It’s a NEED…. We need energy to power the world and that is not about to change.  What will change is the supply demand story….and that is what will drive prices.

Now this morning – oil is down $1.4 on those recurring weekend fears that something is going to happen in the Mid-East.  Iran has been ‘threatening’ for 2 weeks now and the weekend is always a risk that something happens when most of the markets are closed…So, you see some trader types taking ‘risk off the table’ and that puts pressure on prices because the buyers see the anxiety in the sellers and so they bid lower – taunting the sellers…

And btw – that is the way it works in any asset…. Anxious sellers always create panic to the downside, while anxious buyers create ‘excitement’ to the upside… Just look at what happened yesterday in the stock market…. compared to what happened to the stock market on Monday August 5th!  Excitement vs. Panic – amazing.

Gold continues to churn around the $2500 level and this morning it is up $11 at $2503.  Yesterday we saw gold trade as high as $2510 and as low as $2470 on the excitement and interpretation surrounding the retail sales report…

Eco data today is all about Housing Starts and Building Permits – which are supposed to be -1.5% and -2% respectively….and if so, I suspect we will see that begin to turn around next month as lower rates will spur new housing demand.

US futures are taking a break…. Dow and S&P both flat, while the Nasdaq is up 20 and the Russell is up 10 pts.  The rally we have seen this week is great and as my good friend Tom Hayes of Great Hill Capital told Stuart Varney yesterday – ‘When the music plays you gotta get up and dance’.  I love that quote because he is exactly correct and that is what we have seen this past week…investors, traders and algo’s got up to dance!

European markets are up…. Only the UK is under pressure….UK retail sales did rise by 0.5% (vs. last month’s -0.9%), but the uptick was not broad based and so the Brits are figuring it out, while the rest of Europe is also celebrating the latest US data.  The Italians are really dancing with that market up 2.2%.   

The S&P closed at 5543 up 88 pts….  And here I thought the trendline was going to provide some resistance….and once challenged it failed to provide any resistance at all….and that is because the buyers were so excited – the sellers thought – why stand in the way…let them come and get ‘em!  Note the mood yesterday was excitement does not panic! Because when prices are going up it’s all good!  We are now in a position to challenge the highs…. while we are still in a seasonally weak time of the year…and I, like many, expect the markets to trade lower and test those Monday lows at some point before the end of October.

In the end – be confident in your portfolio - take advantage where it makes sense while building in some defensive positions.…. make sure you know what you own and in times like this talk to your advisor if you are concerned.

Pork cutlet milanese

Love this dish…

You start by making the Tomato Bruschetta  - get some nice ripe plum tomatoes - maybe 7 or 8.......dice and add to a glass bowl.....3 or 4 cloves of garlic....now crush two of them and then slice the other two - add to bowl.....fresh basil - chopped, s&p, olive oil and diced red onion......(I love red onions so the more the merrier - but you figure it out...) - cover and let marinate...do not refrigerate....

Next the Pork Cutlets – Pound thin then Rinse and pat dry.  Beat a couple of eggs and set aside.  Prepare a bowl with Italian seasoned homemade breadcrumbs - set aside. Prepare a bowl with flour – set aside.  Make the assembly line – Flour, Egg wash then breadcrumbs.

Pour some olive oil in a broiling pan and turn broiler on high. You want enough so that you cover the bottom of the pan – but you do not want the cutlets bathing in oil…...place the rack on the second level below the broiler.

Dredge the cutlet in the flour then dip in the egg wash and then dredge in the homemade breadcrumbs making sure to coat well on all sides.  When the oil is hot - place the cutlet in the broiler pan and turn over so that the seared breadcrumbs are now under the broiler.  Cook for about 5 mins or until a nice golden brown.  Flip the cutlet and broil the other side - another 4 / 5 mins or so.  Remove.

 Now the presentation.... You need to make a bed of greens on the plate - maybe fresh spinach, or arugula, or Boston bib - you can mix or use just one.... Next place the broiled cutlet on top in the middle - looks good, no?

Now - using a spoon - add the bruschetta on top of the cutlets - this is a colorful dish...you have the green from the greens and you have the red from the tomatoes.... It is like eye candy.......

Serve with a red wine of your choosing.... I like a Chianti Classico with dish - but you can choose whatever makes you happy.