Market Update
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The two most prominent financial news in the U.S. this week are operating data from several retail leaders and the July minutes of the Federal Reserve Open Market Committee (FOMC). Judging from the market reaction, the market has considered the two pieces of news as a positive development. The operating data of retailers is not as bad as feared and the July meeting minutes hint that the Fed may consider slowing interest rate hikes.
- Walmart’s (WMT) operating data outperformed market expectations as it was not as negative as it had warned in July. In addition, revenue growth was primarily due to rising prices, while profits continued to be constrained. The CEO also stated that higher-income consumers have begun to shop at Walmart to purchase daily necessities, which is good for Walmart’s business. From an overall economic standpoint, this shows that consumers are forced into buying lower-priced goods due to the pressure of rising prices, which may further affect their ability to spend on non-essential necessities. As other retailers such as Target (TGT) and Lowes (LOW) did not announce good results.
- The markets are ignoring the Fed’s statement that monetary policy is likely to remain tight until price increases are under control. The minutes mention that they have noticed a cooling of overall economic activity, including consumer spending, home purchases, corporate investment, and manufacturing. The minutes also mention the negative impact of interest rate hikes. The market is generally optimistic and anticipates that the Fed may slow down the pace of interest rate hikes. In summary, economic activity has cooled but the Fed is likely to continue to raise interest rates. It seems that economic fundamentals and monetary policy are not particularly favorable for the stock market.
- The latest meme stock, Bed Bath & Beyond (BBBY), rose from a recent low of $4.38 to a high of $30 with effectively no changes to its fundamentals, driven by investor frenzy reminiscent of GameStop (GME) last year. After reaching $30, the following two days saw a rapid decline for BBBY, falling to $11 on Friday. This serves as a reminder of the dangers of investing in meme stocks and virtual currencies as seen in the recent market decline until last mid-June.
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