Here’s two important news items that would move markets normally, but are having little impact today. This supports my hypothesis that the markets are distracted by the automakers.
First, AP via Yahoo Finance, Target plans price cuts despite lower 3Q earnings:
Target Corp. said Monday it will aggressively cut prices to give consumers bargains during the holiday season, even as weak sales of its apparel and home offerings led third-quarter earnings to fall 24 percent.
The discount retailer also said sales in established stores have been weak so far in November, and if that persists it expects fourth-quarter earnings below analyst expectations.
“The increasing financial challenges and economic uncertainties facing American households continued to pressure our performance during the third quarter,” Chief Executive Gregg Steinhafel said during a conference call with analysts.
He also cited higher write-offs in the company’s credit-card business, where profit fell 83 percent. Target added $104 million during the quarter to a reserve fund to cover future write-offs as customers have trouble paying their bills.
The company has fared worse than its chief rival, Wal-Mart Stores Inc., as consumers cut back on discretionary spending and shop mainly for necessities, since more than 40 percent of Target’s revenue comes from nonessentials such as trendy fashions and housewares.
This is pretty bad. The funny(?) part is that this actually beat expectations. Though this isn’t necessarily good for my bets on the downside, this is good news for the short term. Target is a big player, and beating expectations is a sign of too much pessimism. Unfortunately, you’ve got to contrast that with the fact that they also announced that they were going to put the squeeze on themselves by lowering prices. If this gambit doesn’t pay off, next quarter is going to be very grim indeed.
The next news item comes from Lowe’s. Once again, AP via Yahoo Finance, Lowe’s 3Q profit falls 24 percent on slow spending:
Lowe’s Cos. Inc. posted better-than-expected third-quarter results Monday, even as profit slid more than 24 percent because shoppers postponed big-ticket purchases amid growing economic uncertainty.
The nation’s No. 2 home improvement chain said it earned $488 million, or 33 cents per share during the three months ending Oct. 31 — down from $643 million, or 43 cents per share, a year earlier.
This year’s results were helped by a sales boost from an active hurricane season along the Gulf coast, but were hurt as shoppers scaled back on purchases of large items such as kitchen cabinets.
Lowe’s larger rival, Home Depot Inc., is expected to see those same competing factors when it reports results for the third quarter on Tuesday.
Revenue at Lowe’s climbed 1.4 percent to $11.73 billion, from $11.57 billion during the same period last year. Same-store sales — an important retail industry metric — sank 5.9 percent.
“The third quarter continued what has been a very difficult period for our industry as many exterior factors weighed on home improvement sales,” Lowe’s Chairman and Chief Executive Robert Niblock told investors during a conference call.
Analysts surveyed by Thomson Reuters expected the company to earn 28 cents per share on revenue of $11.62 billion.
This is also bad. However, it solidly beat expectations. Once again, this might be a sign of too much pessimism. However, once again, the long term view is not too good. If sales held up because of hurricane replacements, that’s not likely going to translate to good sales next quarter.
Both Lowe’s and Target beat expectations. In a bear market, that would often be the basis for a rally. We’re in a bear market. We’re even near a recent low. So why aren’t we getting a rally off of this? I think it’s clear that the market is distracted by a very large shadow. Home Depot will announce tomorrow. Let’s see if they can move the market.
On the plus side, when the auto bailout finally does get announced, there might be a lot of pent up buying pressure from all of these announcements. On the minus side, having the airlines or some other industry step in too soon afterward could cause all buying to evaporate completely. The timing of the two (because I’m pretty confident both will happen) will determine how events unfold.
