The long grind higher since the April 8th lows came to a thudding halt last week and, not surprisingly, it was the Consumer Discretionary names leading the way lower. By the time the closing bell mercifully rang on Friday, an entire month worth of gains had been vaporized:
The Macke Mall Index (a block of 10 stocks w/ over $1b total revenues, generating >50% of their sales from mall stores) were hit the hardest, combining as they do the double-whammy of heavy exposure to consumer spending fluctuations and the biggest impact from non-stop adjustments to tariff policies.
It certainly felt horrible, but the battering was both long overdue and not tremendously meaningful in light of the rally since the April 8th market lows. Since that monumental day, the S&P 500 is now up 26%, the XLY Consumer Discretionary ETF has gained 23% and Macke Top 10 (a subjective mix of 10 well-run companies with disproportionate exposure to American consumers) has gained 24%.
In times of macro uncertainty, stocks move as a group, which is one reason why good stock market bottoms are marked by days when 90% of stocks traded move lower for a day. Tops, in contrast, see breadth eroding with outside moves in "meme" stocks or "long-shots" or basically whatever term you want to use to describe a market where names like $VFC can pop 30% on a mediocre earnings report, then give all the gains back in a matter of days.
For all the individual noise and newsmakers, stocks rallied as a group from April 8th to the start of last week, at which point, the process reversed with authority:
This week we get earnings reports from Wafair ($W), Uber ($UBER), Marriott ($MAR), Disney ($DIS), Elf ($ELF), and Peloton ($PTON). Not to mention HIms ($HIMS) and Palantir ($PLTR).
I'll have more on all of the above (or at least a few of them) in the next 5 days. Suffice it to say there will be a little something for everyone.
Weekend Shopping: Walmart vs Target and the Tariff Product Pull Forward:
One of the rallies that got mercilessly stuffed last week was in Target $TGT, the beleaguered discretionary discount store my dad used to run back in the 80s and 90s.
As I often do, I went out to the stores to "kick the tires" up close and personal. I try to mix up the locations, as way too much can be made of one-off store visits. Target has thousands of stores, and unit managers vary in quality. But some aspects of a chain can be sussed out if you know what to look for when you shop.
Yesterday I went out to Target and Walmart. My mission was to find summer products for a trip to the beach. The purpose was twofold. First, I wanted to see how in tune with current local demand each store was. In a low-margin industry, the ability to flex merchandising strategy can make the difference between winning and losing. Amazon can deliver most products to me on the same day. If Target and Walmart are going to keep customers, they need to be more convenient than "staying home and waiting an hour."
I live in Southern California. The Target and Walmart I visited are across the street from one another, each less than 2 miles from the beach. My shopping list was: Cheap beach towels and a fly swatter.
I spent 20 minutes in Target and found zero (0) beach towels. I'm sure Target carries beach gear but I couldn't find it. No towels, limited bathing suits and a sad little free-standing sun tan lotion display.
I did find plenty of Back to School goods and, weirdly, Halloween product:
Walmart, which is for official purposes considered a Consumer Staple concern, had electric bicycles in the entryway and an entire stand of towels, bodyboards, and locally-branded sweatshirts immediately inside the store. In ten minutes I spent $30 on towels and regretted not picking up a couple of bodyboards, just for the fun of it.
This seems like a small thing, but retail is detail. Target's traffic was improved over recent weekends, the store was reasonably clean, and the lines were short. But it was missing easy sales and obviously pulling seasonal inventory way, way forward, likely in response to the tariffs.
At least locally, but I'd bet nationally as well (based in part on Target's July Circle Week being focused on Back to School) Walmart is outperforming Target on impulse discretionary items. Target's shares have been brutalized over the last several years but the chain is cheap for a reason.
Target used to OWN discretionary. Going into a Target for detergent and leaving with a cart full of shirts and maybe a boom box defined the "Tarjay" experience. Target isn't offensively bad anymore, but it's not yet good, either. For $TGT to rally sustainably it's going to need to do better, both locally and nationally.
My advice for anyone investing in this space is to go out into the stores, or at least shop them online. Spend some time picking up the vibe. See how the customers are acting and try to find a product, any product, just to get a feel for the in-stock situation.
You won't leave with a fully developed investment thesis, but it's a great place to start.
