Target (TGT) and Walmart (WMT), Rising Interest Rates Impact the Real Estate Market, Housing Supply, Supply & Demand in the Energy Market, and Harrison Johnson, CFP®: Tax Filing vs. Planning

Target (TGT) and Walmart (WMT)

We have seen companies like Target (TGT) and Walmart (WMT) get absolutely hammered this earnings season with WMT down close to 25% from its 52-week high and TGT down over 45% from its 52-week high. While valuations may start to appear attractive in the retail industry, be careful as inflation could weigh heavily on these companies. In an inflationary environment like this, you want to find companies that have pricing power and that can offset their cost inflation. In the retail space I am more interested in companies that own their own brands as I believe that right names can increase prices to offset rising costs. 

 

Rising Interest Rates Impact the Real Estate Market

It appears those rising interest rates could now be impacting the real estate market. New home sales in the month of April fell 16.6% compared to March and were down 26.9% from April 2021. At an annualized rate of 591,000 units, the result greatly missed the estimate of 750,000 and was the slowest sales pace since April 2020. While new homes sales account for a smaller percentage of overall home sales it is based on signed contracts in the month which can be considered more up to date when comparing against closings. The slower sales pace resulted in a 9-month supply of newly built homes. A 6-month supply is generally considered a balanced market between buyers and sellers. One other major negative for builders is that they are starting to see an uptick in cancelation rates. This is just one indicator, but with affordability remaining difficult I am still looking for a small pullback over the next 6-12 months, which could present some buying opportunities. 

 

Housing Supply

Could rising mortgage rates and cooling housing demand actually increase housing supply? According to Realtor.com the supply for homes increased 9% last week compared to the same time period last year. This was the largest gain since the company began tracking the metric in 2017. Redfin also announced new listings rose nearly twice as fast during the 4-week period ending May 15^th compared to the same time last year. The concern of perhaps a housing peak could cause more sellers to try and lock in gains before prices fall. This comes as pending home sales dropped 4% in the month of April and were down 9% compared to April 2021. Again, I want to be clear.... I do not foresee a housing crash but rather a reasonable pullback in housing prices to increase affordability. 

 

Supply & Demand in the Energy Market

Last week I discussed the supply issues that are causing price increases for gas and diesel. On the demand side of the equation, it is not looking positive for prices. The US Department of Transportation reported Thursday that total miles driven in the US surpassed pre-pandemic levels. Americans drove 277.4b miles in March, up from 272.4 billion miles during the same month in 2019 (+1.8%), and up from 269.4 billion miles in March 2021 (+3.0%). Higher demand and lower supply will continue to produce an imbalance and higher prices in the energy markets. 

 

Harrison Johnson, CFP®: Tax Filing vs. Planning