As this week opened, Walmart’s earnings report failed to satisfy and so the hilltop screamers told us the end was near. One voice said loudly, and others murmured in assent, the proof would come in Target’s earnings report. In a steady cadence and with great volume, the voice said, “And Target too shall fail to satisfy.”

  • Target’s second-quarter profit came in just ahead of expectations while sales missed estimates. The Canadian business is costing more than Target anticipated and will weigh on full-year profit.

A sales miss and a drag on profit from its newly opened Canadian outlets pushed Target to warn of cautious consumer spending.

  • Target Corp (TGT) warned on Wednesday its annual profit was likely to be near the low end of its forecast as it anticipated continued cautious consumer spending.

True, consumers are a bit more cautious about buying knick-knacks and other low-end products from the big retail discounters. Tax hikes, budget cuts, and a general negative tenor from the breathless media have caused the consumer to pull back from wild spending sprees, but even with that going into a hole thing, the consumer is still spending on the low-end.

  • Sales at Target stores open at least a year, or same-store sales, rose 1.2 percent, below analysts’ estimate of a 2.1 percent increase and its own forecast of a 2 percent to 3 percent gain.

I just love this about market analysis and the reporting thereof. Profit beats, which is good, but the fact that sales rose year-over-year is bad because they did not meet expectations. The conclusion almost across the board is that retail sales are “not doing well.” The hilltop screamers now have more energy to keep shouting that the sky is falling.

Unfortunately for them and their ilk, they have a problem. Retail consumers are still spending, even if it is not up to a level that the soothsayers predicted. Worse yet, consumers are spending precious dollars on home projects, furnishings, and remodeling of homes up and past the levels soothsayers predicted.

  • Lowe’s reported a bigger-than-expected rise in quarterly profit and sales as the housing market’s recovery encouraged Americans to spend more on their homes, prompting the No. 2 home improvement chain to boost its fiscal-year outlook.

Again, it is unfortunate for those who only see darkness, but an even larger problem for those predicting the fall of the US economy is the reason why consumers are spending money on home projects, furnishings, and remodeling of homes.

  • U.S. home resales rose in July to their highest level in over three years, suggesting a sharp increase in borrowing costs is having only a limited impact on the housing market’s recovery. The National Association of Realtors said on Wednesday that existing home sales jumped 6.5 percent to an annual rate of 5.39 million units.

So, despite rising interest rates, tax hikes, budget cuts, and the breathless media highlighting the sensational, the US consumer is still alive and well.

Now, let’s add to the above mix of troubles the nonsensical idea that QE tapering is going to kill the US economy and the market as well. With all of that, how is it that the economy and the market are still moving forward?

Consider for just one moment an alternative reality, you know, something other than what the mass media is telling us. Consider the possibility that all of that bad, especially the QE tapering, is actually good for the US economy and the market …

  • So much for Egypt, It is back to the economy. Rising bond yields are driving money out of the so-called “hot markets” and fears that the Fed is going to lay out tapering plans is causing a global market sell-off.

The ‘hot markets’ are global commodities, and the fear is the flood of liquidity across the globe that has stimulated growth, which has increased demand for commodities, will soon end. The problem is that this, along with geo-political trouble (think oil), has also fueled excessive speculation. Thus, the “global market sell-off” is happening because the perception is that without the central banks’ spigot, growth will cease. The reality of supply and demand is second to greed.  

Jump to oil, arguably the most highly traded commodity in the planet.

  • Oil has been boosted since July mainly because of geopolitical risks (Libya, Nigeria, Iraq, and Iran) not so much by surging demand or even demand expectations Oil prices are now shifting their focus away from threats to supply and turning to potential threats to demand.

This suggests to me that the price of oil might start adjusting to supply and demand issues. Currently, both favor a lower price in oil, which favors the US and global consumer. Given this, and the end of the driving season in the northern hemisphere, the US and global consumer will actually have more money to spend this fall. What will this do to the voices of doom? Nothing, really, as they have been screaming since before the fall, during the recovery, and will continue long after. It is what they do.

And what about the stock market? Will QE tapering kill it, as the screamers shout?

  • Quantitative easing of course helped drive money into the emerging markets and now the threat that the Fed is beginning the long journey back to rate normalcy, money is looking to exit the emerging market and move back to the U.S.

Move back to the US and go where? Think about it.

Trade in the day; Invest in your life …

Trader Ed