When looking at the market, and its reaction to some of today's news stories, we're compelled to share some perspective. There is so much talk about the length of the Bull Market and when the next recession will come that it appears some investors may not be able to see the forest for the trees.
One of the TOP TRENDING STORIES today was, Retail disappointments, energy decline hit Wall Street. (1) "Target Corp said on Tuesday that third-quarter profit missed estimates as investments in its online business, higher wages in a tight labor market and price cuts hurt margins and a big jump in inventories ahead of the critical holiday season worried investors. Target shares tumbled as much as 15 percent as the retailer also reported that comparable sales missed expectations." (1)
The selling pressure on Target suggests investors may be missing the bigger story here. First, as was stated above, Target has been INVESTING HEAVILY IN ITS ONLINE BUSINESS, and second, Target expects to have a good holiday shopping season, so they have INCREASED their inventory quite substantially. In going through Target's numbers, we see that their 2018 3rd Quarter results are actually quite healthy. Their year-over-year comparable store sales growth is +5.1%, and their adjusted earnings-per-share are +20% as compared to 3rd Quarter 2017.
Interestingly, the results that Target achieved were very much in line with what its management had expected. However, they fell short of consensus expectations. With respect to the inventory build, Target increased its inventory +18% higher than it was in the 3rd Quarter of 2017. Perhaps the +49% increase in their digital sales last quarter has Target preparing for a robust holiday shopping season. Similar positive trends have been seen in other retailers like Walmart and Macy's.
Despite the continued strength in the US economy and the healthy economic data that persists, many investors attention returns to the question of whether or not now is the beginning of the next bear market. We continue to find little evidence to suggest the bull market is over. The data indicates the US economy will continue its growth, and that despite the current volatility, equities continue to be attractive.
1. Reuters news - 11/20/2018 Caroline Valetkevitch
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