In this episode of the Jarvis Update, Left Brain’s Director of Research Brian Dress, CFA, and CEO/CIO Nolan Langford give a conversational market recap and deep‑dive into the week’s retail earnings. They note a choppy, sideways market after a prior rally, with the S&P down 0.3%, Nasdaq up 0.3% and the Russell 2000 down 1.5%. Inflation data showed core PPI flat month‑over‑month, better than expected, and Fed Governor Bullard signaled a terminal rate between 5‑7%, which the hosts interpret as a neutral‑to‑positive sign. Treasury yields are slipping, with the 10‑year below 4% for a second week. The “good” retail earnings segment highlights strong reports from Walmart, Home Depot, Lowe’s, Macy’s and Bath & Body Works (BBWI). The hosts discuss BBWI’s business model shift away from malls, its dividend, leverage, and a range of high‑coupon bonds (2027‑2028‑2033‑2037) that offer attractive yields, presenting a bond‑play alongside the equity. The “bad” retail earnings segment covers weak reports from Target (shrinkage/theft concerns), TJ Maxx and Advanced Auto Parts, noting that lower‑income consumers are struggling while higher‑income shoppers remain resilient. The hosts lament rising shrinkage across retailers and question how firms will combat it. Finally, they look ahead to the holiday shopping season—Black Friday, Cyber Monday, and the traditional “Santa Claus rally”—suggesting that sentiment could shift bullishly and that the period historically yields strong market returns through April. They close with a call to action for investors to consider the Jarvis Update newsletter and Left Brain’s research services.
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A choppy week in markets. A choppy week in markets as earnings season moves toward its conclusion. We cover this and much more in this week's Jarvis Update. I'm your host, Brian Dress, Director of Research here at Left Brain, joined as always by our CEO and Chief Investment Officer, Nolan Langford. Nolan, welcome to the program.
Hi, Brian. Excited about Thanksgiving next week.
Absolutely. Going to stretch that stomach out and get ready for it. All right. Before we get started, a quick preview. Markets move largely sideways this week after last week's rocket. Two quick topics for us as we usually cover. The first is retail earnings, the good. And then we're also in the second topic going to talk about retail earnings. We're going to talk about the bad. Before we get started, a couple of announcements for you. First of all, we produce this show for you, the everyday investor, where you— whether you have a 401(k) or an IRA, if you manage your own money or if you work with an advisor, we'd love to be a resource for you and be a second opinion in a difficult market. If you'd like to talk and get a second opinion, make sure to give us a call at the number below. Also, if you're an institutional investor, we've got something for you as well, and that's our investment research service, Left Brain Investment Research, where we offer you 6 to 10 full-length stock reports each month and also The Chosen. That's our favorite stock and favorite bond idea each month. So check that out. We put the link down below. Either way, we'd love to have you sign up for our biweekly newsletter, the Jarvis Update. It's off. We're off this week, but we always have some investment content to bring to your inbox every Saturday morning. So make sure you get on the mailing list. And of course, we humbly ask for a like and a share. It helps other investors find this content and also subscribe and hit the bell for notifications so you find out when the next video is out. And we're out every Friday morning. These videos. With that, we'll jump right into our market recap. The S&P was down about 0.3% this week. NASDAQ was up about 0.3%, and the Russell 2000— that's the small-cap index— was down about 1.5%. It's a little bit of a reversal of what we've seen the last few weeks where Russell has outpaced the broader market, but the market does seem to be pausing after last week and digesting a lot of news flow. First of all, we had the Producer Price Index. That was our second inflation reading. It came out this week. Core PPI came out at 0.0 month over month. So it does seem that inflation slowing down at the producer price level expectation was 0.3%. So certainly better than expected. We also heard from Fed Governor Bullard of the St. Louis branch of the Federal Reserve. He said the terminal federal funds rate could go anywhere between 5% and 7%, but that didn't crush the market. So we took that as a positive sign. And we're also seeing Treasury rates starting to leak downward. As investors seem to realize that they need to lock in some high yields that they're seeing in the bond market. We also see the 10-year Treasury actually trading below 4% for the second week in a row, and it's actually below 3.8% on Thursday's close. We also had a number of earnings. We'll talk about those in the two topics below. It was a bit of a mixed bag. Now, with that all in mind, what are your initial impressions on the market this week?
You mentioned it earlier. You used the word sloppy. And I couldn't agree more. I wouldn't make much of those headline numbers. Russell being down 1.5%. I don't know, maybe that has something to do with indigestion from last week. Could be that the US dollar slipped a little bit. Then there was a divergence between the, the Nasdaq and the S&P. And we've seen this sort of interest rates up, Nasdaq down sort of relationship. We'll have to see how that all, how that all shakes out. But you mentioned it last week, there was so much action and activity. Maybe people are digesting before they fill themselves next week for Thanksgiving. So we'll have to see how it shakes out.
I like how you work that in there, Nolan, for a second time. You're definitely looking for turkey. With that, we'll jump into the first topic. So topic one is going to be retail earnings, the good. Overall, we saw a mixed bag out of earnings releases this week. We're going to kind of segment it into two sections. Definitely had some really positive reports and a few really negative reports this week. We heard from a number of major retailers this week. On the good side this week, Nolan, we heard from Walmart, that's ticker WMT, with a pretty strong report. We heard from a couple of the hardware giants, that's Lowe's, LOW, and Home Depot, HD. And we also heard from Bath Body Works, BBWI, one of our old favorites, and Macy's, letter M. Nolan, what are your takeaways from this week's earnings and earnings season in general so far?
This was definitely retail week. You know, the first week of earnings was bank week. It sort of let out earnings this week, and now this is retail week heading into Black Friday next week. And this is important because the consumer is really important. I think over 60% of GDP is attributable to consumer spending. And we've heard a lot from the Fed. One of the things that they want to do is really slow down the economy, i.e., slow down the consumer and their consumer spending. And we know the consumer has been spending. So we've kind of gotten mixed signals. On the one side, we've seen numbers that shows the economy is weakening, sorta. But the job numbers are still fairly strong. If you listen to Target, the consumer's weak. But if you listen to Walmart, the consumer's strong. If you listen to Home Depot and Lowe's, the consumer's strong. So which is it? You know, of course, we follow travel. We know the consumer spending on travel. And they're going to continue to spend on experiences. But I think stuff, not so much. So I think that's why we've had some conflicting numbers. TJ Maxx is a number one— is another one. Their home goods business seeing softness. I think anything tied to housing, house purchases, and apparel has been weak. And remember, the strength in the Walmart report was mostly groceries. So mixed. There you have it.
Let's zoom out a little bit on earnings, Nolan. So over the last few months and quarters, we've seen this pattern where, of course, market's been weak going into earnings season. Earnings season has sort of sparked a little bit of optimism among investors, especially as we see sort of the beat and raise on lower expected numbers. We're coming toward the end of earnings season and sort of the pattern in 2022 has been you know, we start to move our gaze toward the macro factors once again when earnings season comes to a close. Is this, is this quarter going to be different? Are we looking at that same pattern coming back as earnings fade away this week, this quarter?
I sure hope not. I hope we don't get the post-earnings fade. It would not be good. I would be disappointed for a lot of reasons. One is this usually the strength in the market, this quote-unquote Santa Claus rally usually starts right now. And so we don't need any post-earnings fade. The other thing is, I think from a macro background standpoint, I think we have some, uh, potential tailwinds that might show up at some point. The war in Russia-Ukraine is going to end and there's going to be a ceasefire. That could be a potential catalyst. We also have China— are they reopening slowly? What's happening over there? But that's a potential catalyst when China reopens. And then finally, like you and I discussed in pre-production here, we have analysts bringing the expectations for 2023 down. And what that means is, as the 2023 numbers— the bar gets set lower, it's going to be much easier for companies to beat expectations and raise— raising optimism. So let's hope the, uh, the optimism side of investors really trumps the, the post-earnings fade. Remember also, there's a lot of investors that are uninvested, and we've seen this a couple going back before we had that big rally last week. Negative sentiment is almost at record highs. And so once those things normalize, that could be another potential catalyst.
Nolan, as far as, you know, companies that reported and did quite well, Bath Body Works, that's ticker BBWI, did pretty well. We've watched that stock, it's down over 50% this year. That's one way you can play that, uh, the recovery in that business. But what's another way we could play the recovery in the business over at BBWI?
So first off, I don't think this is necessarily a turnaround. I think the business has been doing just fine. You know, they had the, the split-off. They were one company, L Brands, which was Lex Wexner's creation, one of the most famous retailers in the history of retailing. Behind Sam Walton. He might be the next famous for the number of retail shops and how, how well he's done in retail. But at first they were part of a conglomerate, L Brands, Victoria's Secret and Bath Body Works. Uh, they split off a couple years back. Uh, Bath Body Works have been feeling its way as a separate company, so I think business conditions there has been, been well all along. Uh, stock price surged through last summer, and since last summer the shares are down about 50% since then. But the stock pays the dividend. They do have some debt, they're about 4x levered. And then their business model, they're transitioning. It used to be all malls, and now they're moving some stores off mall because foot traffic at the mall, uh, has sort of peaked. But I think this is a really healthy business. Candles, soaps, body sprays, they do very well. And we're headed into their strong season, which is the holiday season. So yes, you can take a position in the stock. We, through our accounts, at Left Brain. We've had exposure in the past to Bath Body Works stock. We like management, we like the business model. But the other way that you can play it is the bonds. They have a whole series of bonds that trade with pretty good coupons on them that we're really comfortable you're going to get repaid and do very well. Uh, there's a few series. There's a 5.25% coupon bond from 2028. I think it trades in the low 90s, so the yield to maturity is over 7%. There's a 6.694% coupon bond with the 2027 maturity, trades just below par. And then there's a couple of big coupon bonds, a 7.6% of '37, a 6.95% of 2033. So big coupon bonds trade just below par. Where if you want to go out and, and, uh, with a longer-term bond, you can get over 8% yield to maturity. So you have an opportunity for capital appreciation plus income.
Well, if you got any question if Nolan's a bond savant, he just ran off the whole bond stack of L Brands, Bath and Body Works. No question any longer. With that, we'll move on to topic 2. So topic 2, we're going to talk a little bit more consumer retail and earnings. And this is the not so good side of the equation. Nolan, as you mentioned, we did hear from Target. That's letter TGT. Very bad report this week. We heard quite a bit of shrinkage, as they call it in the retail business. Theft is a big problem at Target and a number of other issues going on there. You also alluded to TJ Maxx, TJ Maxx, that's TJX. And then we also heard from Advanced Auto Parts this week, AAP. The three of those were not positive reports. Nolan, can you talk to us a little bit about, you know, what we saw in those negative reports and any thoughts around that?
So there's a couple of things that, that stick out. One is we like to get a read on the direction of economic circumstances and the read on generally how the consumer's doing. And the fact that we had these mix-match earnings reports is not very helpful. One of the things that was clear, I think consumers sort of in the lower income bucket are struggling and higher income consumers are doing fairly well. So that's one of the things that we can define. The other thing that has me scratching my head is this shrinkage, as you put it, which is people going in and getting the five-finger discount. And we've seen it not just at Target, but even places like CVS, Walgreens, they've also alluded to it. And even some retailers are pulling out of whole markets. We heard that, I think, with Walgreens earlier this summer, pulling out of New York. That's a sad commentary on on US morals and ethics. It's not like you're stealing big-ticket items. I mean, these are small items. I have no idea what's going on in our society, but that can't be good. And I have no idea how these retailers are going to fight back and what they're going to do to stop it. Now, they're going to get a handle on it. I'd like to see what the fix is going to be, but that's a problem.
Huge problem. All right, Nolan, that's all really helpful information. Any final thoughts we want to leave with the investors as we bid them adieu this week?
Yeah, this is a really important time for investors in the calendar. Again, we have Black Thursday or Black Friday coming up. We've got Cyber Monday, and that'll go a long way to determining what the retail season is going to be like, whether there's going to be discounting, whether the consumer's strong. But more importantly, sentiment changes. This is generally the time of the year where sentiment goes from bearish to bullish. And historically, we've seen good market returns from now until April. And this year could be especially so. We've seen those numbers about the midterm election season and a bear market, and generally post that, the return numbers on the index are north of 20%. So a lot to pay attention to here over the next couple of weeks. And I think there's a lot of reasons to be bullish.
Well, Nolan, I think we might all wanna put on our red hats for the Santa Claus rally. Hopefully that comes through for the investors out there. We wanna thank Nolan for being with us. Thank the viewers once again, and we'll see you again next week.
