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Target Stock Tanks After Warning Of Stingy Holiday Season—Even As Retail Sales Rise

Topline

Target shares fell 16% early Wednesday after the big box retailer warned of a slow holiday season as shoppers could cut back on spending with elevated prices and the economy on the brink of a recession, but the latest retail data offered a sliver of hope for the retail industry ahead of the critical shopping period.

Key Facts

Christina Hennington, Target’s chief growth officer, attributed the holiday crunch to a “precipitous decline” in discretionary spending during the company’s quarterly earnings call as the company reported a decline in profit.

But October retail sales paint a much different picture: Census Bureau data released Wednesday morning revealed a 1.3% increase in consumer spending from September to October.

That narrowly edges out the 1.2% monthly rise projected by economists surveyed by the Wall Street Journal and Refinitiv’s 1% economist consensus estimate.

Target’s grim forecast bled into other large retail stocks, with shares of Best Buy, Costco, Williams-Sonoma and Lululemon each falling 2% or more in early trading.

Key Background

Consumers have thus far proven resilient despite facing the highest inflation levels in 40 years, with the latest retail data revealing steady spending on pricier items like cars. The latest data has revealed that inflation may have already peaked in the U.S. or may soon do so, with investors proving optimistic that a Federal Reserve pivot away from its aggressive interest rate hikes could soon occur. Target’s top rival Walmart actually moved up its yearly profit and sales forecasts in its earnings call Tuesday, sending its shares up 7%. Walmart’s stock is up 2% year-to-date compared to a 35% loss for Target in the period.

Big Number

19%. That’s how much of all retail sales that holiday sales in November and December account for, according to the National Retail Federation.

Crucial Quote

“This is the calm in the middle of the storm; once the eye of the hurricane passes, the winds will begin whipping again next year, and those people who believed the storm had ended, will be surprised to see it resume its ferocity,” Independent Advisor Alliance’s head of investments Chris Zaccarelli said Wednesday, noting the continued resilience displayed by the American consumer could pose a challenge in the Fed’s fight to bring down inflation.

Tangent

Despite Wednesday’s doom and gloom, the holiday season is typically an auspicious time for the stock market, exemplified by the “Santa Claus” rally. The S&P 500 historically rises 1.7% over the last five trading days in December and first two trading days of the following year. Stocks have rallied heading into the 2022 holiday season, with the S&P up 11% since October 1.

Further Reading

US holiday shopping 2022: ’Tis the season to be (cautiously) optimistic (McKinsey)

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