Wells Fargo now thinks the base case would be a mild recession for the US with GDP growing 1.5% in 2022 and negative 0.5% for 2023.. I think going forward in the coming weeks more banks and research houses will start to downgrade the US economy… thus the market is now starting to price in a recession…
Previously the fears was on rate hikes… thus the sell down was focus on high growth profitless tech.. now the fear is quite different already… the fear has evolved as this earnings season has been disappointing.. traditional stocks are being sold down sharply too.. this time its retail stocks crashing.. as Target fell 25% last night missing earnings…
Basically for the retailers.. profit margins are compressing… their cost is increasing due to shipping and chain supply issues… workers are demanding higher pay… then when they want to sell the product they cannot instantly increase the price.. the price hikes have to go slow.. you can’t just up prices by 10% or 20% straight up.. the consumers will jump to another store.. so prices go up like 2% to 5% per quarter… thus the retailer absorbs the pain of inflation… be it department stores like Target or super marts like Walmart…
Walmart was down like from 148 to now 122 a crash of 26 or about 17.5%… this is pretty rare as its considered a defensive stock selling basic needs… older investors hold this baby for retirement you know… and if even WMT can crash so hard… its really striking a lot of fear to retail investors…
These companies are guiding for a very weak 2022.. the slow down is very real… as the CEO’s have a better insight to the industry than the analysts/economists.. demand is coming down… margins are coming down…thus this is a double whammy for the S&P500… not only are you seeing negative earnings growth.. both your EPS drops and your PE ratio drops as investors values stocks lower… thus the extreme sell down…
Even online retailer like Amazon is not spared… down 7%…
Costco down 12%! I think its PE ratio is on the high side… and has a lot of down side… same for Amazon… the valuations are on the high side…