Premarket dollar losses for Dollar General on lower guidance and weak earnings

Stocks gained marginally yesterday on mixed economic numbers. It was another slew of numbers that suggest that the Fed will be able to skip another hike at September’s FOMC meeting.

GPS not activated. We are so used to easy access to information these days. Most of us have one form or another of GPS to get us safely where we are going, though my mother-in-law seems to defy technological progress, managing to shuttle my father-in-law about using her “animal” instincts alone. Let’s talk about those for a moment. She is a healthy woman in her 80s , and she still manages to get around with only a rudimentary flip phone, which is more times than not, turned off. Her car does not have the giant iPad-like screen that many recent models now have. No, she has simply… a radio, which is incidentally, perpetually tuned to AM band (if you don’t know what that means, ask your parents). She gets by just fine by sticking to what she knows really, really well. The same roads to get to the same stores, movie theaters, and thankfully my house . The only problem with that system is that if something changes even slightly, like, say, a road closure, the entire elaborate scheme may fail.

This is similar to how many investors navigated the markets for the years that followed The Great Recession and Global Financial Crisis. That system, to which I will refer to as “the old way,” worked really well, even rewarding the faithful through that “once in a generation” pandemic and economic lockdown. However, 2022 became that road closure with what appeared to be no alternative route. The old methods buying the dip, sticking to “safer” bonds, and jumping into the latest unicorn IPO proved to… um, not be profitable. You know what I am talking about. But don’t worry, you are not alone. We all rely on our experience and knowledge to make informed decisions, and many, if not all of us had a really rough year in 2022.

I have a little secret for you that may or may not make you feel better. The Fed, too, had a really rough year! The Fed? Yes, the Fed. Fed members have grown quite accustomed to raising and mostly lowering rates keeping the stock market climbing and the economy trudging forward in a record GDP expansion period. The Taylor Rule, the Phillips Curve, jawboning the markets, policy speeches, dot plots, quantitative easing, growing the balance sheet, shrinking the balance sheet… it all worked smoothly and even got the markets through the COVID crisis. But then came the road closure: runaway inflation. Fed members frantically thumbed through their faithful strategy handbooks looking for the chapter on fighting inflation more than 3 times the target. There was no chapter, just a single page with a picture of Paul Volcker, the nearly 7 foot tall, inflation fighting Fed Chairman who reigned in the 70s and 80s. His picture, see below, prompted Fed members to slam on the brakes, as Volcker did… somewhat successfully, many decades ago when significant inflation last reared its ugly head. Ok… so now what? Did it work?

Well, inflation did come down a bit, but it is still significantly higher than it should be. So, what is the Fed to do next? Aha, that is easy, simply look for familiar landmarks. Employment numbers, GDP, the bond market, corporate earnings, inflation numbers themselves, and, secretly, the stock market. Surely, there is something amongst those that can offer the Fed some guidance as to what to do next. Back to the old Fed playbook for another look… and, still nothing but Volcker. How about that old Seminole Samuelson economics book from college? Still nothing. In his Jackson Hole speech, Fed Chairman Jerome Powell talked about navigating with the stars covered in clouds. That is a fancy way of saying that there are road closures, his GPS is not working, and he cannot find any recognizable landmarks. Yesterday’s economic numbers were a perfect example of this. GDP was revised downward which can be an indication that restrictive monetary policy is beginning to bite. The ADP employment number showed a significant decrease from the prior month indicating a potentially softening labor market, but housing numbers continue to show strength. Housing is a big driver of inflation as it is theoretically quite sensitive to interest rates. Powell looked up to the stars yesterday and the prior day and saw nothing but clouds. He will look up again today and tomorrow when PCE Deflator and Nonfarm Payrolls are released, and he is likely to encounter more clouds yet. No GPS and no stars to guide him. Here is some good news. Back in the 1980s, Volcker most likely carried a mobile phone similar to the one pictured below. It had a battery life of around 10 minutes… and no touch screen. The clouds were indeed filled with clouds in those days as well, and wouldn’t you know, inflation ultimately dissolved, as will once again, soon… with a lot of patience. Stick to your long-term strategy, that continues to work just fine. I have to end here; I think my in-laws just arrived.

WHAT’S HAPPENING IN THE PREMARKET

Dollar General Corp (DG) shares are lower by -16.59% after the company delivered disappointing EPS and Revenue misses for last quarter. The company significantly revised its full-year guidance to below analyst expectations. Dividend yield: 1.49%. Potential average analyst target upside: +19.6%.

Salesforce Inc (CRM) shares are higher by +5.79% after the company announced that it beat EPS and Revenue estimates by +11.82% and +0.90%. The company also raised full-year EPS and Cashflow guidance promising a strong second half performance. Ongoing cost cutting and strong demand are given credit. Potential average analyst target upside: +18.5%.

YESTERDAY’S MARKETS

NEXT UP

• Initial Jobless Claims (August 26^th) is expected to come in at 235k, slightly higher than last week’s 230k claims.
• Personal Income (July) is expected to have remained constant at +0.3% and Personal Spending may have picked up with an increase of +0.7% relative to June’s +0.5% increase.
• PCE Deflator (July) is expected to come in at +3.3%, slightly higher than last month’s read of +3.0%.
• After the closing bell earnings: Dell, VMware, Broadcom, Nutanix, Samsara, and MongoDB.