The retail sector is in the spotlight right now, with investors eyeing the second-quarter reports from a slew of companies across the economy. Walmart had a great quarter, but retailers like Target and Kohl’s struggled to move the needle during the spring. They’ve largely blamed inflation for their underwhelming performance, as well as persistent supply chain issues causing them to over-order their inventories and get stuck with massive backstock overflows.
The stock market remains mixed as investors digest this complex retail situation. The Dow Jones index was down just 0.1%, as was the tech-heavy Nasdaq Composite. The S&P 500, on the other hand, notched a minuscule 0.1% increase–in short, all three indexes are basically sideways Thursday morning, showing investor uncertainty as everyone gets ready for more data from the retail sector. Adding to the uncertainty are the meme stocks that have popped in recent weeks.
Meanwhile, weekly jobless claims are dropping and showing that the labor market is as strong as ever. The Federal Reserve has been pleased that the labor market has remained steady in the face of its ongoing quantitative tightening plan, which can occasionally backfire and slow the economy down. If this pattern continues, the Fed might manage the “soft landing,” bringing inflation down without hobbling the economy.
Retail Remains Major Focus
It’s hard to overstate the importance of retail when it comes to the appearance of the market’s overall health. Kohl’s recently revised its guidance for the second half of the year, warning that its sales could fall 5% to 6% as inflation continues to hammer demand in the premium retail sector. “2022 has turned out to be very different than we anticipated,” CEO Michelle Gass dryly noted on an earnings call.
Shares of Kohl’s dipped as much as 8% in early trading, leaving the retail sector in a puzzling position. On the one hand, budget retailers like Walmart are still raking in revenue despite persistent inflation. On the other hand, premium retailers like Kohl’s and Target are struggling to turn a profit with their overstuffed inventories and lagging consumer spending.
The question for retailers now is whether that consumer demand will spring back in the holiday season. Historically, American consumers tend to slowly ramp up their spending over the year, with the biggest spending season coming in the final three months of the year. Thanksgiving and Christmas are prime retail spending seasons.
Bed Bath & Beyond Crashes as Fast as It Rallied
Shares of the new meme stock favorite, Bed Bath & Beyond, crashed in value overnight after Ryan Cohen, the head of RC Ventures, announced his firm’s plans to sell their massive stake in the company. As recently as yesterday, Bed Bath & Beyond looked like the next meme stock gold mine, gaining a huge amount of value over just a week as investors mobilized by social media poured money into the stock.
If the name Ryan Cohen sounds familiar, it should. He’s the founder who took Chewy to the moon with an online sales business model that blew up in popularity. He’s also the current CEO of GameStop, and his leadership is partially responsible for that meme stock rally in early 2021 that put subreddits like WallStreetBets on the map. As an activist investor, Cohen helped reshape BBBY’s board of directors, using his position as one of the largest shareholders to appoint his picks to leadership roles.
A spokesperson for BBBY noted that the company was “pleased to have reached a constructive agreement with RC Ventures in March and are committed to maximizing value for all shareholders.”
US Jobless Claims Fall
Meanwhile, US jobless claims are also finally falling. Labor market conditions could be described as tight, but that’s not necessarily a bad thing for workers. Working-class Americans have more leverage to negotiate for higher wages, for one thing. For another thing, it’s easy to find work when businesses are fighting over quality employees–they’ll get into bidding wars with each other, which is wonderful for the average worker.
Notably, the strong labor market indicates that the Federal Reserve might have an easier time ahead of them than previously thought. The economy has begun to stabilize already, with inflation finally beginning to cool off and gas prices sinking. “Fears of broad-based layoffs have yet to materialize,” explains Oxford Economics’ Mahir Rasheed, a U.S. economist in New York.
“Still, we doubt claims will accelerate sharply as labor demand remains well ahead of labor supply, while the outlook for the economy remains relatively positive despite elevated uncertainty regarding inflation and growth,” Rasheed continued. If the Fed is able to thread the needle and bring the value of the dollar up without obliterating demand for labor, things will feel pretty good for American workers. On the other hand, it also means that retailers might have some tough times ahead of them when it comes to finding enough help to cover all their shifts.