What’s happening: Inflation is already causing consumers to back away from spending on some items as they look to cut spending, a shift that will have dire consequences for the next phase of America’s recovery from the pandemic, the country’s major chains have revealed.
This has resulted in a very large stock of some products, especially kitchen utensils, televisions and outdoor furniture. Its shares plunged 25 percent on Wednesday, their worst day since 1987.
Target CEO Brian Cornell said during a conference call with analysts, that shoppers are concerned about the “high and persistent inflation they are experiencing, particularly in food and energy,” though he stressed that consumers remain “resilient” and continue to benefit from the pent-ups – up Save and get excited about seeing friends and family again.
He added that traffic to stores remains strong, up nearly 4% year-over-year, and May got off to a healthy start.
But analysts who scrutinize the results said they represented a radical change after the boom era following the Covid lockdown.
Streaming the stimulus checks and money they stashed away while they stayed home, Americans have spent with abandon. Now, with bills soaring, the anxiety is forcing many households to be extra careful — and stores have been taken aback.
“There are a few companies that are intertwined in so many aspects of the American economy as [Walmart] And [Target]and its logistics and supply chain operations rival or surpass most other companies,” Bespoke Investment Group said in a note to clients. If they have these kinds of issues to keep up with a rapidly changing environment, who wouldn’t? “
R5 Capital’s Scott Mushkin said after Target’s earnings that he now sees an environment for retail traders that is not investable, at least in the short term.
“Inflation and costs are out of control, consumer spending is swinging wildly and, at least in our minds, fear is growing about how long consumer spending can stay there,” he wrote in a research note.
The drop in Target’s share price on Wednesday appears to indicate that investors are preparing for “the idea that this shoe is likely to go down.”
“This leaves us thinking about whether the unprecedented boom in the past two years will be followed by an unprecedented collapse, the scale of which we cannot even imagine,” Moshkin said.
Controversial hedge fund Melvin Capital shuts down
When an army of curated Reddit day traders set their sights on GameStop shares early last year, many hoped to punish one man: Melvin Capital’s Gabe Plotkin.
The hedge fund had bet that GameStop stock would fall. It was battered when the stock rose about 1,700% in one month.
In a letter to investors seen by Reuters, he said the past 17 months have been an “incredibly difficult time”.
Melvin Capital had $12.5 billion in assets at the beginning of 2021 and was seen as one of the most successful hedge funds on Wall Street. Then his fortunes changed.
The company had assets of $7.8 billion at the end of April. A person familiar with the fund’s finances told Reuters that the fund lost 23 percent in the first four months of 2022.
Plotkin said Wednesday that he has begun the process of exiting centers and will stop charging management fees at the beginning of June. He added that he “gave everything he could”, but that was not enough to achieve the returns that customers expect.
The big picture: The closing of Melvin Capital is a stunning fall from grace. It shows the lasting effects not only of last year’s meme stock frenzy, which shocked many traditional investors, but also the far-reaching effects of this year’s volatility, such as concerns about inflation, interest rates, China’s response to the pandemic and the war in Ukraine. Leave investors a few places to hide.
Musk rages on as Tesla gets to boot from S&P’s ESG Index
“ESG is a SCAM,” he wrote on Twitter. “She has been armed by pseudo-social justice warriors.”
A step back: S&P Dow Jones Indices said in a blog post that Tesla’s ESG’s standing has been affected by allegations of racial discrimination and poor working conditions at its Fremont plant.
The automaker’s handling of the National Highway Traffic Safety Administration’s investigation into fatal accidents involving autopilot technology has also been called into question.
“While Tesla may play its part in getting petrol-fueled cars off the road, it has fallen behind its peers when examined through a broader ESG lens,” wrote Margaret Dorn, executive director in charge of ESG Indicators for North America. Blog post.
Index makers have jumped into the frenzy of investing in ESG to create a range of new products that they can market to clients who want to better align their portfolios with their values. But many were making up the rules as they went. Oversight by regulators is still minimal.
- Initial US jobless claims for last week arrive at 8:30 AM ET.
- Existing US Home Sales for April at 10 a.m. ET.