Stock Market Action Clear Sign Consumer Spending Declining
Wednesday, September 26th, 2007
By Michael Lombardi, MBA for Profit Confidential
Yesterday’s stock market action delivered a clear indication that consumers are cutting back on spending in three distinct areas. The concern, of course, is that after years of having “loose” wallets, the tightening of those wallets by American consumers could lead to a homegrown recession.
The largest U.S. homebuilder, Lennar Corporation (NYSE/LEN), reported a quarterly loss of more than five hundred million — yes, that’s a loss of half-a-billion dollars in three months! Lennar reports that revenue is down about half, as soft demand for new houses continues. No surprises here. We all know the housing market in the U.S. is soft. I started writing about the coming crash in the U.S. housing market in 2005. Things will get worse for housing before they get better. On the Lennar news, most other homebuilder stock prices fell.
Lowe’s Companies Inc. (NYSE/LOW), the second biggest home improvement retailer after The Home Depot, Inc. (NYSE/HD), reported yesterday that it would miss its profit forecast for this year simply because sales are weak. The prediction that the home renovation boom would be coming to an end was a “no brainer.” With the housing market so weak, those consumers doing fixer-up jobs in the hope of selling their homes are having second thoughts. On the Lowes news, Home Depot stock also fell.
Target Corp. (NYSE/TGT), the second largest U.S. discount retailer, cut its projections for September sales. Originally, Target had expected same store sales to rise four percent to six percent in September — now the company expects sales to rise to only 1.5% to 2.5%. I have often written about how the softness in the housing market will ultimately lead consumers to cut general retail spending. On the Target news, Wal-Mart Stores Inc. (NYSE/WMT) stock also declined.
As a big believer in the theory that the stock market is a leading indicator, the stock price action we saw yesterday from the homebuilders, home improvement retailers and the discount retailers is as clear a sign that we can get that the U.S. consumer is pulling back on spending. The Fed will have to do a lot more than a 50-basis-point drop in the discount rate if it wants to avoid the U.S. recession headed our way.
Next Post: Housing Market Problems Still Not OverPrevious Post: How the Loonie’s Parity Actually Feels in Your Wallet
Tags: stock market, U.S. housing market, Wal Mart
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Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
