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Daily Market Update – February 20, 2014 (9:30 AM) When Wal-Mart can’t deliver good earnings and then gives some dour guidance, what chance does anyone else have? If you believe that retail is a reflection of the health of the consumer then it’s important to see that sector performing well, even if their share prices don’t follow. Further, there are those that use the various retailers’ performances as reflection of various segments of society and how those segments are sharing in the economy. When Wal-Mart isn’t doing well, the possibilities are that people are moving to a different, perhaps more upscale retailer such as Target or to a lower level retailer, such as Family Dollar Store. Assuming that you weren’t an investor in any of those companies, which would you rather see happening? Which do you think is happening? With some slight increase in jobless claims and a couple of months of disappointing employment numbers, given the already weakened state of retail, Wal-Mart’s earnings and outlook aren’t very encouraging for an economy that still isn’t setting the world on fire. On the other hand, Wal-Mart has made a habit lately of being off on their own guidance and under-performing. Perhaps a part of the story is just their own inability to forecast in addition to what is going on in the marketplace. During the past few quarters the market has had very muted response to Wal-Mart’s own earnings and guidance issues, other than a very brief and quick drop when Wal-Mart released some rising inventory data that was interpreted as a very bad sign for the economy, until a Wal-Mart spokesperson clarified the limited meaning of those numbers. Speaking of fires, the market is more likely to place emphasis on disappointments from the world’s largest retailer than it is to rejoice over Tesla’s numbers or even make illusions of a bubble in the making as Facebook pays $16 B for a company that most people have never heard about, despite nearly 500 million users. While Tesla and Facebook may have both been profitable investments they’re not going to have much trickle down elsewhere and they certainly aren’t going to sustain or charge an economy. The remainder of this week is not likely to have any real leadership or theme so there will likely be lots of discussion about the three big stories of the day; Wal-Mart, Tesla and Facebook. Unless I have direct ownership or am thinking of ownership, I tend to block out those kind of stories, as their relevance is extremely limited. If the market isn’t overly concerned about Wal-Mart, why should I be? After yesterday’s turnaround and nearly triple digit loss and this morning’s early turnaround in the pre-open market from negative to positive, there’s at least some hope that the week to end the monthly cycle may finish on an up note and help to achieve an acceptable assortment or assignments, rollovers and expirations. As I look out the window and watch the snow quickly melting as we enjoyed a Sochi-like kind of day yesterday and again today, it reminds me that the excuse of weather will soon run its course. While it’s true that there may be some pent up buying ready to explode once people can find their way to the stores, as many analysts have been saying, those seasonal purchases that were delayed will remain that way for a year. While that should impact on the next quarter of earnings the stock market game is very much built on expectations and guidance. Our expectations going forward are going to be low as we’re still freshly reminded of the difficult winter. The reality, even if only matching our lowered expectations may be seen as a positive. For the moment that encourages me as the March 2014 cycle is getting ready to begin. Cash and optimism can either be a dangerous combination or one of opportunity. I think opportunity awaits.
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