Wow talk about missing the mark with earnings–Walmart and Target laid giant sized earning misses on the market. Analyst thought Walmart yesterday was a one off–but Target proved that wasn’t the case by missing by about $1/share today.
These are ominous signs for the economy–a strong consumer, yet profits for some are fleeting. The Fed is going to be backed into a corner and will never, ever do all the interest rate hikes that they claim they will do. Part of my thesis is that with these weakening retailer profits layoffs are going to begin–when you can’t control costs of goods there is always the quick and easy way to cut costs–labor. Shareholders will demand some sort of action and we have already experienced Amazon and Walmart communicate that head counts are too high. Target will do the same. When big, highly visible employers start cutting jobs consumers will ‘pull their horns in’.
This is going to take months to play out–maybe September and October and while it is likely rate increases for June and July will take place – after that point I am thinking it will be very questionable–maybe a pause for observation. Shortly thereafter we will enter a recession in 4th quarter 2022. The question is where will inflation be at that point?