It has been a record-breaking week on Wall Street. After a favorable inflation report was released Wednesday, which showed inflation growing at 3.4% in April, the market rallied, with the Dow Crossing 40,000 for the first time. Though the market is celebrating the CPI mark, there are still cracks in the foundation, in our opinion.
Retail sales growth stalled entering the second quarter, while aggregate earnings moderated, and revolving credit expanded at its lowest pace in three years. We have been cautious about the strength of consumers for months as credit card debt continues to rise and the cost of that credit continues to reach all-time highs. When the consumer, representing 70% of GDP, is forced to slow down, the economy will follow.
Walmart reported strong earnings this quarter. But it wasn’t driven by retail sales alone, they are taking advantage of the skyrocketing fast food and grocery prices by offering their new grocery brand, Bettergoods. The premium line includes unique flavors and merchandise tailored for more health-conscious customers or those with a special diet, such as gluten-free or plant-based items. For example, it includes strawberries and cream-flavoured Greek yogurt, curry chicken empanadas, restaurant-style chicken wings and salted caramel oat milk ice cream. After McDonalds went viral on social media for offering a Big Mac Combo meal with an $18 price tag, consumers are looking for better dining alternatives. Seventy percent of the brand’s items are under $5, according to Walmart’s US CEO John Furner, — a price point that may catch the eye of shoppers “trying to feed a family of four, five, [or] six.”
This week also saw the “Return of the Meme Stocks” with incredible buying taking place in GameStop and AMC Theaters. GameStop, (GME) closed Friday May 10th at $17.55 a share, by Tuesday morning May 14th the stock had hit a high of $57, and as of this writing has fallen back to $28.92. The movement of the stock has nothing to do with fundamentals, but more to do with influencers and traders working together to drive the price of the stock. This is a dangerous game to play and can be very costly. On Monday alone, short-selling hedge funds suffered a mark to market loss of $833 Million. This is reminiscent of 2021 when Hedge funds lost billions in assets.
We continue to be cautiously optimistic on the market. Cash and money markets are still yielding 5%, while we continue to look for more market opportunities. We will forgo participating in chasing Meme stocks nor short selling any holding as well. https://www.cnbc.com/2024/05/16/walmart-earnings-grocery-sales-rise-as-fast-food-prices-increases.html
