Americans are still buying up a storm

14November 2021

A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here.
Retail sales in the United States soared more than expected in September and figures for August were revised higher to show a bigger jump than initially reported. October numbers will be released Tuesday. More healthy gains are expected, despite lingering worries about rising prices and supply chain disruption.
Inflation isn’t yet killing demand, and investors have taken notice. The SPDR S&P Retail (XRT) exchange-traded fund, which holds a variety of leading retail stocks, has surged nearly 60% this year, beating the broader market by a big margin.
Americans are spending a lot on their homes in particular, especially as house prices continue to surge.
Why some say the worst of the supply chain woes are near an end
That’s been great news for retail giants Home Depot and Lowe’s, which are both set to report earnings this week. Home Depot (HD) shares have soared nearly 40% this year, making it one of the top performers in the Dow (INDU). Rival Lowe’s (LOW) has done even better, skyrocketing about 45%.
Both retailers have benefited from the fact that there are plenty of DIY enthusiasts looking to fix up their homes before selling them, as well as new homeowners who need to do renovations. The two companies also sell lumber and other supplies to professional builders.
Analysts are predicting Home Depot’s earnings per share will rise more than 20% this fiscal year, which ends January 31. Wall Street expects an even bigger profit pop — nearly 30% — for Lowe’s.

Can it be sustained?

Home Depot and Lowe’s aren’t the only major retailers on tap to post solid results. Investors are also betting that discount giants Walmart (WMT) and Target (TGT) will report strong sales and earnings.
Department store chains TJX (TJX), Kohl’s (KSS) and Macy’s (M) will be reporting earnings too.
The big questions will be what demand looks like for the holidays and whether these retailers can ship enough goods for customers to get them wrapped in time. The bumper fourth quarter — which accounts for most retailers’ profits — is at the mercy of snarled supply chains overseas and port congestion in the United States.
“Retail sales are expected to soar this holiday shopping season due to high consumer confidence as well as rising personal income,” said Louis Navellier, chairman of Navellier & Associates, in a report last week. “The shortage of some key goods should not derail holiday spending, since when consumers have money in their pockets, they will spend it.”
Hasbro (HAS)‘s finance chief Deborah Thomas said a few weeks ago that she felt the worst of the logistics issues were over and that the toymaker should have plenty of new products on retailers’ shelves in time for the December sales rush.
Still, what’s happening in China may send a warning signal. Online commerce giants Alibaba (BABA) and JD.com (JD), which both report earnings this week, each posted record sales from their Singles Day shopping extravaganza during the first eleven days of November. But the pace of growth was much slower than in previous years.

A summit between the world’s top economies

President Joe Biden’s highly anticipated virtual summit with Chinese President Xi Jinping will take place on Monday.
On the agenda: The talks come at a time of heightened tensions over Taiwan, trade and human rights. At the same time, the United States and China just unveiled a surprise pact on climate, underscoring some areas of cooperation.
For investors, discussions between the world’s two largest economies are always worth watching. The meeting will be Biden’s first with Xi since he became president in January.
There will be plenty to talk about. While the Biden administration recently reached an agreement with the European Union to ease Trump-era sanctions on aluminum and steel, criticism of China’s trade practices and subsidies for domestic businesses has persisted.
US Trade Representative Katherine Tai said last week that progress was being made in talks with China to hold the country accountable for promises made in the “Phase 1” trade deal President Donald Trump signed in January 2020.
The global energy crisis and supply chain disruptions could also feature in discussions. And then there’s the weakness in China’s property sector, which rattled American investors earlier this fall.
In a recent report, the Federal Reserve warned that “financial stresses in China … could further strain global financial markets and negatively affect the United States.” The Fed pointed specifically to the crisis at Evergrande, China’s most indebted developer.
Monday: China industrial production and retail sales; Japan GDP; Tyson Foods (TSN), Oatly, Casper Sleep (CSPR), Lucid earnings
Tuesday: US retail sales; US industrial production; Eurozone GDP; Walmart, Home Depot earnings
Wednesday: US housing starts; Eurozone CPI; Baidu (BIDU), Target, Lowe’s, TJX, Cisco (CSCO), Nvidia (NVDA), Bath & Body Works, Victoria’s Secret earnings
Thursday: US weekly jobless claims; Alibaba, JD.com, Macy’s, Kohl’s, Applied Materials (AMAT), Intuit (INTU) earnings
Friday: Foot Locker (FL) earnings

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