2023-11-11 07:00:00 ET
Summary
- CPI report expected to show a month-over-month increase in the headline numbers.
- Home Depot, Target, and Walmart set to report earnings next week, with mixed ratings and analysis from Seeking Alpha authors.
- Strike averted in Las Vegas, with culinary workers reaching a tentative agreement ahead of major events.
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Catalyst watch for the week of November 12. Seeking Alpha Senior Executive Editor Kim Khan on what to expect when CPI is released on Tuesday. (00:21) Julie shares the latest analysis on three retailers set to report earnings including Home Depot (HD), Target ( TGT ) and Walmart (WMT). (02:20) They also discuss the strike that was averted in Las Vegas ahead of major events. (03:43)
Julie Morgan: So, Kim, next week we have CPI.
Kim Khan: Yeah, big inflation report as always, although there's going to be a debate about what it means to the markets and the Fed now that we're at this terminal rate scenario that everybody seems to think the Fed is done with its tightening cycle.
For the numbers, the October CPI is expected to be up 0.1% on the month, falling to a headline rate of 3.3% year-over-year. And the core rate, which excludes the food and energy, which is one we're closely looked at a little hotter, up 0.3%, with its year-over-year staying at 4.1%.
I think that it would take pretty substantial beat on the core of an upside surprise to shake the market's confidence and get things into a – will they actually hike one last time in December debate. But for now, it should be kind of steady as she goes.
What the markets are going to be looking more at is the kind of rate cut future rather than the Fed’s next meeting. And we've seen a lot of action in that – in the swaps market and the Fed funds futures about gaming when the Fed will first start to cut rates and to ease monetary conditions.
It's a tough call. It's seen a lot of movement on the 10-year treasury yield now. And we look at that, and that was up third week of October. It was up above 5%. And everybody's saying, this is just a major impact that it's going to have on the economy and stocks. And now it's back below 4.5% and fighting that level back and forth.
So, obviously, there's a big change in the landscape of what people think is coming from the Fed and this one inflation report really doesn't change much going out in the middle and end of next year where people are expecting rate cuts.
So maybe it just kind of gets a pass from the market this time around. And there are still a few people out there, not a lot, but a percentage of us, so about 20% thinking that the Fed still could hike in December. My dad still being one of them, he's still set on one more rate hike. I don't see it happening, but who knows?
JM: Again, that would be a good debate. And if it happens, I mean, I think that's a show right there in and of itself. Yeah. So let's talk about earnings for the next week. The focus today is on retail. We have Home Depot, Target, and Walmart reporting earnings next week.
I want to point you to the latest analysis on each of these companies from Seeking Alpha contributors.
First, Home Depot. Nathan Aisenstadt rates Home Depot a Hold and poses the question to his 5,000 followers, is Home Depot a wise investment choice amid a surge in inflation? In this article, I want you to look out for what Nathan says about the impact of Home Depot's share repurchase program on short sales.
Target is up next. The latest article on Target is by Skeptical12 . It's entitled “Target: A Value Trap, The Sell-Off Should Accelerate.” Skeptical12 rates TGT a Strong Sell. In this article, look out for what the analyst says about Target's business model, its management and its long-term plan.
Finally, we have Walmart. The latest article on Walmart is by Larry Hall . It's entitled “Walmart: Strategy, Stability and Innovation In A Single Package.” Larry says, Walmart is a Strong Buy. In this article, look out for why the analyst says Walmart is a positive contradiction. I'll leave a link to each of the articles I mentioned in show notes.
Now let's talk strikes. We found out late Wednesday that Hollywood actors and studios have reached a tentative agreement and we know that the deal is worth more than a billion dollars. And according to SAG-AFTRA’s website, there's language in the deal to protect members from the threat of AI, and for the first time, it establishes a streaming participation bonus.
But Kim, there's a tentative agreement on the table, a potential strike that has been averted and it's something that hasn't really been talked about as much and it's in a place that's known for its secrets. Tell me about it.
KK: Yeah, Vegas. It was the culinary workers who were threatening to strike in Las Vegas. They have a tentative agreement now and it's looking like things will be solved before some major events.
Actually, the culinary workers had a lot of bargaining power in this as much as big things happening in Las Vegas. There always are big things, but next week is the inaugural F1 Las Vegas Grand Prix . That was going to be a big thing for the city. There's the Super Bowl that's coming in February. And if the strike had dragged on that long, that could have been disastrous.
These strikes now, as they're getting settled, it's not everything, of course, that the workers will be calling for, but they are seeming to do pretty well out of the current bargaining power they have.
It's interesting from a macro perspective, in as much as we had a lot of people talking about, oh, what is this going to mean? It's just going to mean workers demanding more money and suddenly, inflation is going to kick up because of wage inflation. And we haven't really seen that kind of trickle into it. Yes, inflation is still pretty high, but there's a big debate about how much wages is actually contributing to that.
JM: So tell me this, do you think that's going to be a factor at all? Could it be now just too soon, too close to when the deals have been struck that we don't see it just yet?
KK: I mean, you could always see a little noise in the numbers, but a lot depends on how much you believe in the Phillips Curve, which is the relationship to unemployment and inflation. And if you feel there's too much wage pressure coming, even if you do really believe in the Phillips Curve, kind of got to admit that the Fed’s done enough now an unprecedented tightening cycle.
So they've hiked up rates all the way to 5.5%. And that's going to filter through the system. So I can't imagine that even if like a large constituency, like auto workers gets a substantial rate that is really going to push overall national inflation up that much, that it's going to really influence either Fed policy or how the markets are taking it and how the bond market's pricing in future rates down the road.
JM: So tell me what for you has been really the major sticking point for all of these strikes?
KK: Well, money always is a sticking point. People always seem to be down on striking workers because it is disruptive. A lot of people don't have the bargaining power that other industries have. That's certainly understandable.
But also on the other side, it's never an idea that you really have to kind of invest in your own workforce that gets rewarded by the stock market. Nobody ever gets called a visionary for saying, hey, I want to pay people or they got called visionaries though for saying, hey, let's switch our entire business to crypto. Or let's like, let's let AOL buy us. That's called a visionary thinking somehow, but never like, okay, we're just going to pay our workers more because we're doing well.
But apart from that, a big sticking point has been the technology. And we saw this in both the writers and the actors strikes and in the culinary workers ones even, there are restrictions on the implementation of AI and that's people are worried about AI taking over their jobs.
Certainly, in the Vegas tentative agreement, it requires the casinos to offer retraining and severance if their jobs are replaced by AI and also requires six months notice for the introduction of any kind of AI robotics or new technology into the workplace. A lot of people may be thinking, how does AI kind of replace your bartender?
Well, I mean, sure. Maybe an algorithm can tell you what you'd like to drink and then a robotic machine mixes it up perfectly and there you go, or slices your sushi. It's certainly something that every corporation is looking into implementing as not just a cost-cutting measure, but also a kind of – want to be in the hot new trend, ideas and, also because they want to be called visionaries.
JM: Okay. You said AOL and I'm like, AO who? But to be honest with you, I still have an AOL email address that I use from time to time.
KK: That's great. That's like driving a Mustang around, a ‘65 Mustang. It's awesome.
JM: Yeah, I don't think it's the same. I really don't think that's the same.
KK: Maybe not that cool, okay?
JM: Anything else you want to add?
KK: No, that's it for this week.
For further details see:
Wall Street Breakfast Catalyst Watch: CPI Outlook, Vegas Strike Averted