This week’s newsletter is over Myles abroad, Head of News at Yahoo Finance. Follow him on Twitter @MylesUdland and further LinkedIn. Read this and more market news on the go with the Yahoo Finance app and subscribe to the Yahoo Finance Morning Brief here.
Consumers continue to trade in by shopping at Walmart (WMT).
On the company’s latest earnings call, Walmart CEO Doug McMillon noted that more than half of the market share gains the company posted in the last quarter came from higher-income buyers.
The company also noted that grocery spending continues to make up a larger portion of total sales as what it calls “persistent” grocery inflation squeezes household budgets.
The obvious economic spillover of this trend is that consumers are less confident than otherwise strong data might suggest. As the largest retailer — and largest private employer — in the country, what happens at Walmart economically doesn’t stay with Walmart.
On the other hand, a great story this week from Bloomberg’s economics team on wage growth and how expectations change left us wondering if perhaps Walmart’s comments are less dire than they seem.
As one business owner told Bloomberg about restaurant wages falling from $12/hr before the pandemic to $17/hr today, “You’re never going to unpin that bubble.”
The same can apply to shoppers.
As inflation eased last year, particularly at the pump, consumers of all incomes were looking for the first time in two generations to really save on the most non-negotiable part of a household budget: food.
As inflationary pressures ease, or wage increases continue, or economic confidence generally returns, we wonder if higher-income people who shop at Walmart are simply content to continue making these savings at the grocery store and applying them elsewhere.
Yahoo Finance’s Brooke DiPalma noted the continued growth in spending in restaurants and bars this week as experiences return to favor with pandemic fears fading.
No matter how big or small your salary is, no one likes to spend more than necessary. And that could be the bell Walmart has rung during the pandemic to save on groceries. And the one that keeps calling the company today.
Three big themes this week
Jeffrey Gundlach says Yahoo Finance shares remain in a bear market
Yahoo Finance Executive Editor Brian Sozzi spoke this week with Jeffrey Gundlach, CEO of DoubleLine Capital, and among other highlights from an extended conversation, Gundlach reminded viewers that the U.S. stock market is in a “prolonged bear market.”
“It really started in the fourth quarter of 2021,” Gundlach said. “[It’s] very negative for the stock market when you have rising interest rates at these valuations, especially real interest rates.”
Find more about Sozzi’s best takeaways from his discussion here.
The ‘trash’ rally under pressure
This week, Yahoo Finance’s Jared Blikre and Julie Hyman each looked at this year’s market rally and the defining trade that appears to be in jeopardy – so-called “trash” stocks.
As Julie noted, a basket of stocks favored by retail investors, followed by Goldman Sachs, has outperformed this year. RBC’s comparable basket of what it calls “trash” stocks, or stocks defined by negative cash flow, net losses and net debt – many of which were favored during the pandemic – also outperformed the market.
But as RBC’s Amy Wu Silverman told Yahoo Finance, the fundamental picture hasn’t changed for many of these names. “These are still low-quality names facing a pretty abrasive environment,” said Wu Silverman.
Names like Carvana (CVNA), Bed, Bath & Beyond (BBBY) and C3.ai (AI) underperformed the Nasdaq this week.
Nvidia to the rescue?
On the other side of a hot trade that lost steam this week was Nvidia (NVDA).
The chip giant reported results that beat expectations after the close on Wednesday, and shares rose more than 14% during Thursday’s trading session. Through Thursday’s close, the stock was up 61% year-to-date. From recent lows reached in October 2022, NVDA has more than doubled.
After navigating the recent challenges of a slump in crypto-related spending on chips and renewed caution in the tech industry, Nvidia is now capitalizing on its newfound love for AI and the computational power needed to meet the industry’s future.
“AI is at a turning point, preparing for widespread adoption in every industry,” Nvidia CEO Jensen Huang said this week. “From startups to large enterprises, we are seeing an accelerated interest in the versatility and capabilities of generative AI.”
Chart of the week
Warren Buffett will publish his final annual letter to Berkshire Hathaway shareholders on Saturday morning, and Apple (AAPL) is by far the largest holding in Berkshire’s stock portfolio.
At the end of last year, the tech giant owned nearly 40% of Berkshire’s securities portfolio. In his 2021 letter to shareholders, Buffett named Apple one of the company’s “Four Giants,” noting that Berkshire owned 5.55% of the iPhone maker, bringing Berkshire in $785 million in dividends and a non-profit. -realized $5.6 billion profit cut from Apple.
“Tim Cook, Apple’s brilliant CEO, rightly considers users of Apple products his first love,” Buffett wrote, “but all his other backers also benefit from Tim’s managerial touch.”