Earnings Revealed: What's Next?

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Now let's get into what we reviewed.

 

Here are the 4 key things we went over:

• Why crypto is suddenly acting bullish

• Where the streaming wars are headed

• How debt ceiling negotiations will drive a lot of volatility this week

• What happened with Home Depot, Walmart, Target, and others!

And if you're too busy to listen to the entire recording, below we included a compact summary of what went down.

To get all the juicy details, just listen to the entire recording.

And now, onto the summary 👇

Overview:

The real headline from the last week in the market is simple: 

The American consumer cannot be defeated. Spending is strained right now, but our economic engine is still sound. 

Barring any kind of ridiculous black swan event (looking at you, commercial real estate), the Fed's soft landing is looking more and more possible.

We're still a long way away from knowing whether or not the Fed actually dragged us into a recession, but we're very much in the phase of this downturn where volatility can shift more bullish. 

Of course, this week will hit us first with a lot of negative volatility as we engage in our semi-annual tradition of playing chicken with our debt limit. Every year it's like we want to see just how close we can get to default. 

But the fundamentals in the market are sound enough to warrant at least a decent amount of bull sentiment. 

And, the critical thing to understand going into this week is precisely where consumer spending is shifting. Because while wider strain is driving consumers to essentials and experiences, some specialty retail may be well-positioned enough to thrive in this environment.

So, let's do a quick dive into retail earnings from last week and see what they are telling us about the upcoming specialty retail earnings this week.

Let's dive into the details 👇

 

Retail Deep Dive:

The main highlights from last week were Walmart, Target, and Home Depot. For us, these were the biggest tests of the entire consumer foundation of our economy. 

At the same time, Target and Walmart aren't the best heuristics, as both stores stand to survive well as consumer budgets get compressed. 

For both of the big box titans, this played out. Target nailed the bullseye of their revenue numbers while Walmart raised guidance on the back of solid performance from their grocery and essentials businesses. 

The main theme from these earnings was the strain consumers are under right now. American's are quickly shifting to buying only the essentials and leaving discretionary purchases for later.

Walmart noted that purchases of bigger items like TVs were heavily dependent on sales and other measures. Which makes sense, inflation considered.

But Home Depot's earnings were on watch as they finally posted a revenue miss for the first time in 20 years.

This revenue flop didn't spook the market much because it makes sense in context. Home Depot is coming off of multi-year highs as folks were forced to stay home during the pandemic years and therefore made more time to improve that home.

Furthermore, as consumer spending rushed back to essentials, Home Depot was left out in the cold. 

So this week we're really eager to see how other specialty retail plays have been holding up. In particular, we're really interested in how Dick's Sporting Goods, e.l.f., and Best Buy perform as they are strong outliers in their particular niches. 

But with how hard spending is to predict, we're not really to place any particular bets here. 

Our main goal this week is to really figure out consumer spending and understand the real resilience of spending in the U.S.

After that, the real data from earnings season starts to cool off and we only really have the CPI in June & July's GDP numbers to look forward to. 

 

Wrapping This Up:

Other than retail, we're just watching out for long-term trends and volatile disruptions this week. 

Debt ceiling talks in the U.S. appear to be stalling out despite the fact that the deadline to avoid default is just over a week away. This is a pretty classic move and provides more noise than signal.

Basically, this is the moment where the Republican party has the most negotiating power to advance their policy goals. So, they're going to really ham up their desire to walk away from negotiations and destroy the economy in order to get what they want. 

The market is going to react pretty negatively to this until a deal is reached. Traders have predicted that a deal would lead to a short-lived euphoric buying spree.

But in the recent past, several debt-ceiling deals have caused the markets to crash in the short term. No matter what, debt ceiling talks are a high-volatility situation and you really shouldn't try to trade around them. 

We're also monitoring developments in the streaming space, but we can save those for another video. 

Meanwhile, volatility is gearing up to hit the crypto space as well. A lot of development has hit the Bitcoin blockchain and tens of thousands of new projects are getting registered to decentralized exchanges.

The institutional money in crypto is clearly gearing up for a bull run, but they could simply be doing this for short term exit liquidity instead of some unknown bull signal the wide market is reacting to. 

All in all, there are a lot of encouraging signs, but we are very much still in the period where volatility reigns. Keep your trades close and your hedges closer.