The retail sector weighed heavily on the performance of the stock market this week as consumers continued to drive the economy forward. The July advanced retail sales report showed an increase of 0.7%, while spending rose 1% excluding autos. Both numbers were better than the 0.4% estimates. The uptick in both numbers were boosted by a 1.9% jump in spending at online retailers, while sporting goods and related stores increased 1.5%. Food service and drinking places rose 1.4%. It appears that consumer spending is holding up while inflation continues to moderate, which is a positive sign for the economy. One area we continue to monitor is total credit card balances which recently topped $1 trillion for the first time in the second quarter of 2023. “Consumers spent with vigor in July, perhaps with a sense of relief that inflation is fading even in the absence of recession or extensive job losses,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. The Federal Reserve still has a lot to consider before their next scheduled meeting, but this type of data is an important piece of the bigger picture.
As we digest this data, we’re seeing a shift in consumer spending habits. The big box retailers like Target and Walmart have been noting this change in their recent quarterly reports. Walmart, the nation’s largest grocer, makes more than half of its annual revenue from selling groceries — a category that shoppers buy even when times are tight. Target draws only about 20% of its yearly revenue from grocery, making it rely more on sales of items such as clothing, earrings and throw pillows that customers may skip when feeling frugal. So, while spending is still taking place, “choices” are becoming more obvious. Target tends to attract a more affluent customer who may be prioritizing other things like travel and bigger ticket purchases. We started to see evidence of this several months ago, but recent quarterly earnings from these companies highlighted some of these specific trends. I suspect that we will see more of this in the months ahead as the volatility continues to ease back into our financial markets.
We had a few more negative trading days this week than what we have been accustomed to as of late. I think this should be expected given the relatively strong and quiet summer we have seen so far. The biggest storyline expected next week will be the Jackson Hole summit where Federal Reserve Chairman will give a economic presentation. There are likely to be some expectations that he may give a glimpse into what the Federal Reserve is thinking heading into their next interest rate meeting in September. I’m sure we will be discussing this in our weekly letter to come.
With the last few weeks of summer now upon us and school schedules kicking into high gear (southern schools have already been back for a few weeks!), our daily routines will adjust again. Our two oldest boys are now away at college, and we only have one “last man standing” at home. I’m not sure he will appreciate the additional attention he will receive, but that is just the way it is going to be for now!
Have a great weekend!
Christopher E. Wasson, CFP®
Mosaic Asset Partners, LLC
1122 Kenilworth Drive, Suite 310
Towson, MD 21204
410.821.0089 fax 410.821.5993
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The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra IS or Kestra AS. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by Kestra IS or Kestra AS for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.