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Huge Retail Sales Data Pushes Inflation to the Limit, Boosts Earnings

by | Nov 16, 2021 | Stocks

As expected, headlines across financial media Tuesday focused on retail sales numbers. That’s not a knock either — they should focus their attention there. And we’re going to as well in this week’s Fortune Research Weekly Watchlist…

Source: CNBC

We said Monday if retail sales were strong and the Import Price Index was anywhere from flat to rising, that would indicate accelerated growth through at least early December.

Well, not only did retail sales beat expectations, but the IPI rose way more than expected. Industrial production flipped from negative to positive, capacity utilization rose and business inventories finally accelerated a little.

Source: Bloomberg

With a few weeks of pull-forward Christmas shopping ahead of us — notice how retailers completely skipped Thanksgiving decorations this year — there’s still some juice left in the U.S. consumer.

Just not much…

Notes on the U.S. Economy for the Holidays

Keep in mind that consumer activity comprises roughly 70% of U.S. gross domestic product.

Source: www.financialsense.com

So if consumer activity slows — which it always does after the holidays — then we’re in for a bearish first half of 2022.

Personally, I don’t expect bearishness to play out until the second quarter. If you look at how 2021 unfolded, vaccines were rolled out early in the year, and we got a massive reopening push — resulting in the largest year-on-year GDP growth since just after World War II.

Source: Bloomberg

Mathematically, we know that number is going to be lower the next time around. And because of that, we know we should shift investment focus away from commodities and energy before that time comes.

But in the meantime, the game continues…

Everyone should have been buying energy stocks on dips this week, regardless of how awful it felt. 

Winter is still coming, after all.

Fortune Research Weekly Watchlist Update for Nov. 16, 2021

After the warm fall sun we’re getting Tuesday and Wednesday on the East Coast, temperatures are set to fall well below freezing.

Source: NOAA

And at that point, we should see what price action for the United States Natural Gas Fund (NYSEArca: UNG) and Consol Energy Inc. (NYSE: CEIX) are made of.

The market hasn’t yet realized that the decline in Chinese domestic prices has absolutely no effect on U.S. domestic prices, which are far more beholden to natural gas.

Source: Argus Media

As long as “natty” stays above $4 per mmbtu — for reference, it’s currently $5.25 — U.S. thermal coal prices are going to be super high. And both CEIX and Arch Resources Inc. (NYSE: ARCH) will capitalize.

So UNG, CEIX and ARCH remain on this week’s watchlist.

Gone, however, are copper producer Freeport-McMoRan Inc. (NYSE: FCX), which we made a solid 7% on last week… the iShares Russell 2000 ETF (NYSEArca: IWM), which is beginning to slow down… and the Invesco Solar ETF (NYSEArca: TAN), which never took off in the first place.

Taking their place are three small-cap retailers reporting this week I see as having the most potential to pop…

First on the list is Petco Health and Wellness Company Inc. (Nasdaq: WOOF), which is adding veterinary clinics to 900 stores over the coming months. That should increase traffic by a wide margin, accelerating revenue in the process.

We also like dress shoe retailer Caleres Inc. (NYSE: CAL), which reports on Thursday. Although the back-to-the-office train has been slow to leave the station, carrots are being replaced by sticks across the corporate world, which continues to rent high-priced office space.

While we can’t say exactly how earnings will play out, the likelihood that more dress shoes were sold in Q3 2021 versus Q3 2020 is high.

Finally, mall retailer Buckle Inc. (NYSE: BKE) reports before the bell on Friday. Let me be clear: I’m way too old to shop here. It’s far more suited for the minor league regional rockstar I used to be than the nerdy financial analyst I am now…

But a large portion of its revenue comes from selling blue jeans. And in case you weren’t aware, many waistlines grew during the pandemic.

That means a new business cycle for denim has begun. We should see that reflected in BKE’s earnings going forward.

Add in the fact that management often likes to hand out “special dividends,” and that helps explain the roughly 20% run it’s enjoyed this month.

With monthly options expiry looming on Friday, Wednesday’s FREE TRADE has the potential to fly wildly in either direction… But hey, at least it won’t be boring!

An updated snapshot of your Fortune Research Weekly Watchlist is below… 

Source: Fortune Research, Bloomberg

All the best,

Matt Warder

Fortune Research

P.S. We’re reaching the end of the year and volatility has picked up… With pending Federal Reserve action, ongoing supply chain issues and inflation dominating headlines… it doesn’t seem likely to calm down.

That’s why Joy of the Trade Head Trader Jeff Zananiri has found a way to trade this volatility… 

It’s not based on tracking a complicated list of stocks or using complex research methods… And it doesn’t involve trying to guess when volatility could show up in a single stock.

It’s based on a ticker built to bottle up all of the volatility in the markets in one place!

WRITTEN BY<br>Matt Warder

Matt Warder

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