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By Jeffrey
Cane | Tuesday, November 23 When
Crime Is a Risk Factor. Retail is the most
interesting sector in the market right now, and not all in a good
way. Dollar Tree led the S&P
500 to its modest
gain today, popping 9.2% after the dollar-store
chain announced that it would
be adding a $1.25 price point for its goods. Best Buy, however,
was the biggest loser (off 12.3%) in the benchmark index even as its
third-quarter headline results topped Wall Street forecasts. Why? The
results and guidance were "uninspiring" said Citigroup analysts, who already had a Sell rating on
the stock, saying that its earnings growth still looks uncertain. The
retailer, like others, has had supply-chain problems, which have
hurt margins. Also
pressuring margins is theft. Not just the "five-fingered
discount" of rogue employees or shoplifters, known in the industry as
"shrink," but a whole other level: gangs of
looters. Best Buy CEO
Corie Barry told CNBC:
"We are seeing more loosely organized groups come together and target
our stores…. and grabbing large swathes of merchandise and running out.
" Earlier, on
the earnings conference call, she said this about the impact of
organized retail crime: We are doing
a number of things to protect our people and our
customers.... We are finding ways where we can lock up
product, but still make that a good customer experience. In some instances,
we're hiring security. We're working with our vendors on creative ways we can
stage the product. We're working with trade organizations. But you can see
that pressure in our financials. And more importantly, frankly, you can see
that pressure with our associates. This
is traumatizing for our associates and is unacceptable. We are doing everything we can to try to
create as safe as possible environments. These are
disturbing comments coming from a CEO, yet a quick search of
corporate transcripts on Sentieo finds only Home
Depot talking about the problem of organized
retail crime (in 2019). Still, it is an issue that the industry is
well aware of. A
survey of retailers and loss prevention professionals by the National
Retail Federation this past August found that 57% thought that
the pandemic had increased the risk of organized retail crime. As if
investors in retail stocks did not have enough to worry about. More volatility in
retail stocks could come tomorrow. Shares of Gap were down 15% in after-hours trading tonight
after the company said that
supply-chain disruptions had erased quarterly sales by an
estimated 8%. Supply-chain issues also caused Nordstrom to miss earnings estimates; its shares were
down nearly 22% after hours. The broader
stock market, meanwhile, lacked retail's drama today. Investors are
focusing on the coming of higher interest rates as Jerome
Powell gets the nod for another
turn to lead the Federal
Reserve. Today, the yield curve
again steepened a bit, as the yield on the two-year Treasury note fell to
0.606% while the 10-year
Treasury note yield rose to 1.665% Higher rates
weigh on technology stocks, whose future growth looks less valuable today as
a result. The Nasdaq 100 and the Nasdaq
Composite both closed down 0.5%. Zoom
Video Communications tumbled 14.7% in what Eric
Savitz of Barron's called "a
textbook example of what happens to a hypergrowth stock when it returns to
Earth." Crowdstrike
Holdings (down 3.8%), Okta (down 4.7%), ServiceNow (down 3%), Agilent
Technologies (down 4.9%), and Meta
Platforms (formerly Facebook and down 1.1%) were among
the tech laggards. Higher
interest rates, of course, are better for the margins of banks: Goldman
Sachs Group (up 2.6%) and JPMorgan
Chase (up
2.4%) led the Dow Jones Industrial
Average higher. Energy
helped push the S&P 500 over the line into positive territory as
crude oil for January delivery settled up 2.3%, to $78.50 a barrel, in
the wake of President Biden's decision
to release oil from the Strategic Petroleum Reserve. (More on that
below.) APA Corp. surged
7.3% and Occidental Petroleum climbed 6.4%. The Energy
Select Sector SPDR exchange-traded fund
rose 3%. Gold fell 1.25%,
to $1783.50 an ounce. The U.S. dollar continued to strengthen against other major
currencies, while Bitcoin traded higher this afternoon, at $57,696. Review &
Preview will be off tomorrow, as well as Thursday, for the Thanksgiving Day
holiday. But we will back on Friday, when the stock market has a half session
(closing at 1 p.m.), to wrap up the week. Have a happy
Thanksgiving! |
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DJIA: +0.55% to 35,813.80 The Hot
Stock: Dollar Tree +9.2% Best Sector:
Energy +3.1% |
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