September 14, 2005
Canaries in the Coal Mine??
Yesterday, Best Buy (NYSE: BBY) reported a 25% rise in earnings, but missed Wall Street's expectations by a penny. Also, Best Buy guided earnings expectations lower, stating it expects to earn between 28 and 32 cents a share while Wall Street had been expecting 34 cents a share. (AP's report can be found here.) Analysts claimed that Best Buy just missed raised expectations, which were caused by an amazing first quarter. Jim Cramer has issued a " 'mon' back" on Best Buy after it lost 11% during trading on Tuesday. (See his take here.) However, I believe this is another sign of the beginning of a serious slowdown the "consumer" driven economy. One cannot miss the negative connations of Cramer's old broadcast partner Kudlow, who is a consistant advocate for current business conditions (based no-doubt on his support of the current Administration), ending his show with a plea to consumers to "keep spending, it's important to the economy." Good grief.
Walmart (NYSE: WMT) missed Wall Street estimates for August sales (AP Report here) and has not changed its September sales forecasts due to Hurricane Katrina (Reuters Report here). But, I feel that the cost of oil and other commodities is going to slowly eat away at consumers willingness to spend.
As seen today in the August Retail Sales report, US retail sales dropped a larger than expected 2.1%, the largest decline in nearly four years. (Reuters story here). Wall Street had been expecting a decline in retail sales of 1.2%. Most of the decline in retail sales was caused by a lack of automobile sales, which decreased 12% from July, even though most of the car manufacturers are still providing massive discounts.
I believe the writing is starting to appear on the wall that a downturn in the economy is coming, as the consumer will no longer be able to or want to spend as freely as he/she has in the past ten years or so. And as I have already stated here and here, I believe that the stock market is preparing for a major correction.
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