Retail Ups and Downs: What’s in Store? | The Daily Peel | 8/23/2023

The Daily Peel...

August 23, 2023 | Peel #528


Silver banana goes to...

SRS Acquiom.

In this issue of the Peel:

  • Medtronic and Lowe's shares rose due to strong earnings, while Dick's Sporting Goods and Macy's suffered losses with disappointing performance.
  • A rise in mortgage rates to 7.5% causes existing home sales to slump, affecting the American housing market significantly.
  • Increasing tensions between the U.S. and China threaten economic and geopolitical stability, as China aims to rival NATO and gains influence in the UN.

Market Snapshot

Happy Wednesday, apes.

Are you ready for the big day? Nvidia, the undeniable stock of the year, drops its latest earning report later today, coincidentally right at that same 4 pm time when your portfolio finally stops falling for a few hours. We’ll see who fares better…

Speaking of falling, that just happens to be what equity markets did all day in the meantime. The Nasdaq was the only U.S. major to not paint itself red, eeking out a small, but still green, +0.06% day. Smaller caps and the (absurdly) price-weighted Dow felt the most heat, but Nvidia made a special appearance on the low list as well just a day prior to earnings and after a +8.5% day. Totally rational.

Treasuries had a weird day in the meantime, bouncing around all over the curve, with the 2-year note charging towards 5.1% by the international open. The dollar saw a late-day spike as well as the uncertainty trade—aka, buying the safest assets you can, like USD, long-dated bonds, blue chips stocks, etc., won the day.

Let’s get into it.


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Why should you care? Think: better negotiating and smoother due diligence. Think: avoiding potential transaction issues. Think: competitive advantage for you and your clients, and all the good stuff that comes with it.

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Macro Monkey Says

Existing Gets Hard

Sure, living with mom and dad can be rough, or your mice-infested apartment might have a landlord that’s less committed to it than Jada Pinkett Smith is to Will, but just about anything on Earth is better than a 7.5% 30-year mortgage.

At least, that’s what (would-be) American home buyers are saying lately.

According to data from the National Association of Realtors (NAR), existing home sales slumped even further in July than they did in June. We’re all too aware it’s about to be September, but cut ‘em some slack like you in AP calculus; the housing market is a little slow.

To quantify new home sales, the NAR bases its data on contracts rather than actual transactions. That means the data we’re seeing now can reflect the housing vibe from late spring / early summer and, more importantly, doesn’t include the impact of the 7.49% 30-year fixed rates we’re seeing today. I mean, just take a look:



Still, according to the NAR, existing home sales slumped 2.2% for the month in July and saw a 16.6% cliff dive from July of last year.

But wait, don’t start thinking (and trading) like your the next Michael Burry just yet. According to analysts, the drivers here are still much different than in the pre-GFC period.

In addition to mortgage rates that make (would-be) buyers want to gouge their eyes out, low inventory levels can imply that

  1. the options are fewer (obviously) and, therefore,
  2. the remaining options must be the ones that previous home buyers didn’t want—meaning, the quantity is definitely lower, but the quality of those homes very well might be too.

Add into the mix the fact that everyone rushed to lock in a sub-3.5% rate while JPow was actively trying to take rates below negative infinity, and you get—once again—a housing market cold enough to be a friend of The Incredibles wondering “Where’s my Super Suit?”


"... a housing market cold enough to be a friend of The Incredibles wondering 'Where’s my Super Suit?'"

With only 3 months’ worth of existing home inventory on the market, compared to the 4 months seen for the same period in the pre-pandemic days of 2019, those same homes are still continuing to tick up in price as well. Existing homes averaged a price tag of $406k in July, a whole 2% jump higher than last year.

So, in summary, buyers are facing:

  • Higher mortgage rates,
  • Higher prices, and
  • Fewer options

Good luck! Maybe mom, dad, the mice, and your landlord aren’t that bad after all.


What's Ripe

Medtronic (MDT) ↑ 2.79% ↑

  • Being one of those pretentious companies that annoyingly misaligns its fiscal year with the calendar year, Medtronic yesterday reported its Q1 2024 earnings yesterday.
  • Fortunately for investors, the numbers made up the for the annoyance. The big dawg of the medical technology and electronics industry delivered $1.20/sh on $7.7bn in sales, which came in well above what the Street was betting on.
  • As elective surgeries and other drivers come back online after being put slightly on hold throughout the pandemic, the demand is certainly there. We only hope that can last as shares like Moderna and Novavax rip on expectations (or current reality) of an uptick in C-19 cases. Hopefully, we’re not jinxing anything.

Lowe’s (LOW) ↑ 3.75% ↑

  • On a tough day for retail stocks, Lowe’s stood head and shoulders above, and the stock wasn’t even up that much.
  • Shares got a nice bump on a solid earnings report. EPS of $4.56/sh over-delivered vs. estimates for $4.47/sh, while $25bn in sales was right in line.
  • The big difference here between Lowe’s and those that moved lower was the company’s hyped-up guidance, with the high end of the full-year range coming in well above the Street’s estimates.
  • An outlook of better weather leading to an uptick in DIY projects and smaller renovation projects drove the positivity. Needless to say, we’ll see how that works out.

What's Rotten

Dick’s Sporting Goods (DKS) ↓ 24.15% ↓

  • This company certainly lived up to the first part of its name yesterday, at least from the shareholders’ perspective.
  • Like most of the rest of the retail community, Dick’s shares tanked yesterday after the sporting goods store reported disappointing earnings. Earnings per share were dogs*t at $2.82/sh vs. the estimated $3.81/sh, while sales posted a slight miss but came just about in line at $3.22bn.
  • Guidance, in the meantime, was equally brutalized, with the high end of the full-year EPS range pegged down from $12.80/sh to $12.13/sh, a 14% cut.
  • (Un?)Surprisingly, the company blamed “organized retail crime & theft” at all too many stores for a large part of the miss and depressing expectations, even going as far as to suggest purposefully shrinking the company’s footprint. Hard to get excited about, to say the least.

Macy’s (M) ↓ 14.05% ↓

  • Oh yeah, speaking of fat Ls taken by retail stocks yesterday, this department store ate a 14% fall on the day despite earnings a helluva lot better than Dick’s above.
  • EPS of $0.26/sh on $5.13bn in sales vs. expectations of $0.14/sh on $5.07bn. Lower guidance for the full year, however, was the death knell for investors.
  • Part of the losses suffered across the sector can be attributable to a decline in confidence around the strength of the American consumer, calling into question the macroeconomic picture overall in the meantime.

Thought Banana


A love-hate story worthy of a futuristic rom-com version of Oppenheimer is unfolding right in front of our eyes. If we still have technology or civilization at all after these two get through with each other, it’s already a blockbuster.

The U.S. and China do not get along, and as of yesterday, that was changing. Or it wasn’t changing in the right direction, at least.

"Amid China’s worsening economy and economic outlook, the U.S. has called on its rival and key trading partner to dial up the transparency ..."


If any, the only change was souring tensions and a pot coming closer to a boil. Amid China’s worsening economy and economic outlook, the U.S. has called on its rival and key trading partner to dial up the transparency on data that has recently been covered up.

Some of the newly-cagey data include:

  • Changes in youth unemployment, which had been “officially” 21.3% in June
  • Fining a U.S.-based corporate due diligence firm for conducting “unapproved statistical work” in the country
  • Citing a “reduction in the level of transparency and openness with respect to the recording of basic things,” U.S. National Security Adviser gave his hot take that “these are not, in our view, responsible steps.”

Publicly, the main concern seems to be the benefit gained by other countries and macro planners in knowing what’s going on in the world’s second-largest economy. With this gone, it certainly makes global and emerging market investment more challenging.

Also making this investment more challenging is Big Dawg Joey B, banning some forms of U.S. investment in the high end of the Chinese tech sector.

Meanwhile, China is rallying the global south around the BRICS alliance in, essentially, an all-out bid by the group to rival NATO and gain influence in the UN. Don’t hate the player, hate the game.


"China is rallying the global south around the BRICS alliance in ... an all-out bid ..."

Fun times, to say the least. Tensions are set to continue to simmer when U.S. Secretary of Commerce Gina Raimondo visits Beijing in less than a week.

Not a flight I’d want to be on, but best of luck!

The big question: How will the U.S. and China’s economic, geopolitical, and military relationship unfold in the short and long-term future? How can I make money, or at least not get eviscerated as tensions continue to rise?


Banana Brain Teaser

Yesterday — What phrase is hidden here?

Genie’s Gift
Skydiving Elvis

“Wish upon a falling star.”

Today — It doesn't hurt to take a hard look at yourself from time to time. This little test should help you get started.

During a visit to a mental asylum, a visitor asked the Director what the criteria is that defines if a patient should be institutionalized.

"Well," said the Director, "we fill up a bathtub. Then we offer a teaspoon, a teacup, and a bucket to the patient and ask the patient to empty the bathtub." Okay, here's your test:

  • Would you use the spoon?
  • Would you use the teacup?
  • Would you use the bucket?

"Oh, I understand," said the visitor. "A normal person would choose the bucket, as it is larger than the spoon."

What was the Director's response?

Shoot us your guesses at [email protected].


Wise Investor Says

“The future is never clear; you pay a very high price in the stock market for a cheery consensus. Uncertainty actually is the friend of the buyer of long-term values” — Warren Buffett


How would you rate today’s Peel?

All the bananas




Rotten AF


Happy Investing,

Patrick & The Daily Peel Team

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