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Stocks ease off record highs, dollar pares losses, KO and HOG earnings, bitcoin volatility

Wall Street could be in for a few choppy trading weeks as more of the same strong earnings beats becomes the theme.  The bar was set too low this earnings season, but then again no one really thought it was possible that the US would reach herd immunity..

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Wall Street could be in for a few choppy trading weeks as more of the same strong earnings beats becomes the theme.  The bar was set too low this earnings season, but then again no one really thought it was possible that the US would reach herd immunity by June. The CDC reported that 39.5% of the total population has received at least one COVID vaccine dose, with 25.4% of Americans being fully vaccinated.  The 70% fully vaccinated target is what is needed to reach herd immunity, but with cases trending lower, pre-pandemic behavior should improve dramatically.

With the Fed blackout period upon us and no major economic data until later in the week, financial markets might primarily focus on how the bond market is positioned.  If economic recovery optimism remains strong, the 10-year Treasury yield could slowly rise towards the 1.70% level.  If the market is at a tentative top, risk aversion could become dominant on a break of the 10-year Treasury yield’s 1.53% level.

US stocks appear to have hit a top as all the good news from corporate America has been mostly priced in and as the pause in rising yields continues.  The S&P 500 is lower by 0.50% and Nasdaq has fallen 1.0%.

Earnings

Coca-Cola delivered a strong earnings report with a profit of 0.55 dollar per share, a five cent beat and revenue topped USD9.0 billion, stronger than the USD8.56 billion estimate.  What stands out for Coca-Cola is the organic revenue growth of 6%, which crushed the estimate of 0.51%.  The food and beverage company also reaffirmed their adj organic revenue growth view, which is probably why shares did not surge.  The CFO delivered the most important comment of the day that inflation is manageable this year but could be a challenge next year.  Coca-Cola shares rose 0.82%, but still below the highs seen at the end of last year.

Harley Davidson posted a strong eps beat and raised full-year guidance for both revenue and profit margins.  The motorcycle maker noted that they are seeing initial signs of consumer excitement and optimism returning.  Harley’s strong beat and outlook could be a recurring theme for many consumer discretionary stocks.

FX

The dollar is paring earlier losses as Treasury yields firm up.  The dollar started the week on soft footing as Wall Street began to lower rate hike expectations.  Europe is starting to look attractive now that the COVID situation is starting to improve.  With vaccinations rates approaching 20% and with COVID cases mostly trending lower, Europe can now benefit from reopening momentum.

Bitcoin

Bitcoin is trying to stabilize following the weekend plunge to bear market territory.  The coinbase IPO had crypto mania run too wild and left the market vulnerable for a violent reversal.  The selloff was sparked by regulatory fears and a key power outage in China that impacted where a lot of bitcoin mining is done. Regulatory fears will not be disappearing anytime soon and if the US Treasury announces that they are close to unleashing action to tackle money laundering concerns, that could send bitcoin much lower than the tentative plunge to bear market territory.

Bitcoin’s 20% plunge since the coinbase driven record high was met with decent demand. Regulatory concerns were not immediately confirmed by the Treasury and that might not happen for quite some time.  Institutional demand might find this massive sell-off as a buying opportunity. Bitcoin could continue to stabilize here, with a new trading range forming between USD52,000 and USD62,000 for the next few weeks.

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Five Below makes checkout changes shoppers may not like

The value retailer is discouraging theft at the checkout counter.

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Huge retail chains like Walmart  (WMT) , Target  (TGT) , CVS  (CVS) and others have faced a high amount of retail theft, or what they call inventory shrink, since 2020 and have been implementing measures to eliminate those costly losses.

Among the most common measures used by Walmart, Target and some others has been locking up popular items behind glass cases to prevent shoplifting. Customers shopping at these stores have encountered a lot of their favorite products, such as cosmetics, shampoo, over-the-counter drugs and even laundry detergent locked up in those cases.

Related: Target limits self-checkout, makes a change customers will love

Shoppers need to either push a button near the product to alert a worker to unlock the case or, in some situations, run around the store looking for a worker with the proper key to open the case. It's a very inconvenient problem for shoppers, and not all stores are consistent with their lockup policies.

For example, one Walmart store might lock up some of their instant coffee products, while another cross-town Walmart location, or even a Target competitor, doesn't lock up any coffee.

Retail stores have also implemented new self-checkout rules to discourage inventory shrink, but again, stores are inconsistent with their rules. Walmart stores have a 20 items or less rule for their self-checkout lanes to try to steer shoppers with more items to checkout clerks that might help reduce the occurrence of theft. But neither customers, nor workers seem to be observing that rule. Target on March 17 implemented a new 10 items or fewer rule in its self-checkout lanes, but we'll see if anyone enforces it.

These self-checkout requirements are also supposed to speed up the checkout process, but that only works if all the self-check registers are working and an adequate amount of checkout clerks are working registers as well.

The next step for retailers in addressing inventory shrink at self-checkout would be to eliminate self-check altogether.

Shopping in a Five Below store.

Pat Greenhouse/The Boston Globe via Getty Images

Five Below cuts back on self-checkout lanes 

After finishing the fourth quarter of 2023 with a "higher-than-planned shrink," or higher level of theft than expected in its stores, value retailer Five Below  (FIVE)  has implemented associate-assisted checkout in all of its stores for 2024, CEO Joel Anderson said on the company's earnings call on March 20.

"In addition, in our high-shrink stores, the primary option for checkout is more of the traditional, over-the-counter associate checkout," Anderson said. "We expect to have 75% of our transactions chain-wide assisted by an associate with a goal of 100% in our highest shrink, highest-risk stores to be fully transacted by an associate."

The retailer also checks receipts and adds guards

"Additionally, in those stores, we’re implementing further mitigation efforts, including receipt checking, additional store payroll and guards. We intend to measure progress as soon as Q2 when we perform a limited number of store counts," Anderson said.

Five Below tested several inventory shrink mitigation initiatives late in the third quarter and into the fourth quarter of 2023, which included product-related tests, front-end initiatives and guard programs, Anderson said in the earnings call. He said the most significant change the Philadelphia-based company made across most of the chain was to limit the number of self-checkout registers that were open, while positioning an associate upfront to further assist customers.

Anderson said he is confident the company's measures will help it over time, but the company has not included any financial impact for shrink reduction in its 2024 guidance. The company, however will aggressively pursue returning to pre-pandemic levels of shrink or offsetting the impact over the next few years, he said.

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After 625 Days, The Longest Yield Curve Inversion In History

After 625 Days, The Longest Yield Curve Inversion In History

Today is a historic day, as last night – DB’s Jim Reid reminds us – we quietly…

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After 625 Days, The Longest Yield Curve Inversion In History

Today is a historic day, as last night - DB's Jim Reid reminds us - we quietly passed the longest continuous US 2s10s inversion in history. After the 2s10s first inverted at the end of March 2022, it has now been continuously inverted for 625 days since July 5th 2022. That exceeds the 624 day inversion from August 1978, which previously held the record.

As regular readers are aware, an inverted yield curve has been the best predictor of a US downturn of any variable through history: the yield curve has always inverted before all of the last 10 US recessions, with a lag that is usually 12-18 months, but some cycles - certainly this one - take longer.... much longer.

In fact, the lack of a recession so far has prompted Red to ask - in his latest Chart of the Day note - if the inverted yield curve recession indicator has failed this cycle?

"Possibly", the DB strategist responds, "but in many ways the yield curve has already accurately predicted many of the drivers that would normally lead to a recession. However, these variables haven't then created recessionary conditions as they normally would have done." He explains:

It led, as it always does, the very sharp deterioration in bank lending standards, and led the declines in bank credit and money supply that are almost unique to this cycle. It was also at the heart of why we had some of the largest bank failures on record with SVB, Signature Bank and First Republic collapsing. A significant part of their failure was a big carry trade that went wrong when the curve inverted.

However, even with the above, a recession - according to the highly political "recession authority" known as the NBER - hasn't materialised. This is perhaps because of the following.

  • When lending standards were at their tightest, the borrowing needs of the economy were low relative to previous cycles.
  • Excess savings have been unusually high in this cycle (and were revised higher with the GDP revisions last September), so consumers haven't been as exposed to tight credit as they normally are.
  • The Fed unveiled a huge series of measures to ensure the regional bank crisis didn't naturally unravel as it would have done in a free market or perhaps in many previous cycles.
  • Whilst the Fed’s tightening has been reducing demand, the supply-side of the economy has bounced back strongly from the pandemic disruption, which has further supported growth and made this cycle unique.

So far so good, however, an inverted yield curve should ultimately be a significant headwind for an economy, as capitalism works best when there is a positive return for taking more risk with lending and investments further out the curve. As such, Reid notes, "the rational investor should be prepared to keep more of their money at the front end, or not lend long-term when the curve is inverted" as you are not giving up yield for being able to sleep at night.

So thanks to a historic flood of fiscal stimulus and a daily orgy of new record debt as discussed earlier...

... which means that the US is now running a 6.5% deficit with unemployment near "historical lows", an unheard of event....

... the economy has not succumbed to the inverted yield curve to date, but while it remains inverted the Fed is encouraging more defensive behavior at some point if sentiment changes. As such, the DB strategist concludes that "the quicker we get back to a normal sloping yield curve the safer the system is."

Tyler Durden Thu, 03/21/2024 - 22:20

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Another major retailer cracks down on self-checkout at its stores

The value retailer is discouraging theft at its self-checkout counters by introducing more associate-assisted checkout transactions in its stores.

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on

Huge retail chains like Walmart  (WMT) , Target  (TGT) , CVS  (CVS) and others have faced a high amount of retail theft, or what they call inventory shrink, since 2020 and have been implementing measures to eliminate those costly losses.

Among the most common measures used by Walmart, Target and some others has been locking up popular items behind glass cases to prevent shoplifting. Customers shopping at these stores have encountered a lot of their favorite products, such as cosmetics, shampoo, over-the-counter drugs and even laundry detergent locked up in those cases.

Related: Target limits self-checkout, makes a change customers will love

Shoppers need to either push a button near the product to alert a worker to unlock the case or, in some situations, run around the store looking for a worker with the proper key to open the case. It's a very inconvenient problem for shoppers, and not all stores are consistent with their lockup policies.

For example, one Walmart store might lock up some of their instant coffee products, while another cross-town Walmart location, or even a Target competitor, doesn't lock up any coffee.

Retail stores have also implemented new self-checkout rules to discourage inventory shrink, but again, stores are inconsistent with their rules. Walmart stores have a 20 items or less rule for their self-checkout lanes to try to steer shoppers with more items to checkout clerks that might help reduce the occurrence of theft. But neither customers, nor workers seem to be observing that rule. Target on March 17 implemented a new 10 items or fewer rule in its self-checkout lanes, but we'll see if anyone enforces it.

These self-checkout requirements are also supposed to speed up the checkout process, but that only works if all the self-check registers are working and an adequate amount of checkout clerks are working registers as well.

The next step for retailers in addressing inventory shrink at self-checkout would be to eliminate self-check altogether.

Shopping in a Five Below store.

Pat Greenhouse/The Boston Globe via Getty Images

Five Below cuts back on self-checkout lanes 

After finishing the fourth quarter of 2023 with a "higher-than-planned shrink," or higher level of theft than expected in its stores, value retailer Five Below  (FIVE)  has implemented associate-assisted checkout in all of its stores for 2024, CEO Joel Anderson said on the company's earnings call on March 20.

"In addition, in our high-shrink stores, the primary option for checkout is more of the traditional, over-the-counter associate checkout," Anderson said. "We expect to have 75% of our transactions chain-wide assisted by an associate with a goal of 100% in our highest shrink, highest-risk stores to be fully transacted by an associate."

The retailer also checks receipts and adds guards

"Additionally, in those stores, we’re implementing further mitigation efforts, including receipt checking, additional store payroll and guards. We intend to measure progress as soon as Q2 when we perform a limited number of store counts," Anderson said.

Five Below tested several inventory shrink mitigation initiatives late in the third quarter and into the fourth quarter of 2023, which included product-related tests, front-end initiatives and guard programs, Anderson said in the earnings call. He said the most significant change the Philadelphia-based company made across most of the chain was to limit the number of self-checkout registers that were open, while positioning an associate upfront to further assist customers.

Anderson said he is confident the company's measures will help it over time, but the company has not included any financial impact for shrink reduction in its 2024 guidance. The company, however will aggressively pursue returning to pre-pandemic levels of shrink or offsetting the impact over the next few years, he said.

Read More

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