‘World News’: Bullish Wal-Mart Report = Bearish Economy
After Wal-Mart (NYSE:WMT) reported higher third-quarter earnings and predictions of a "strong" holiday shopping season, the Dow Jones Industrial Average (DJIA) surged 320 points after taking a battering over the previous week.
"[T]here's already evidence tonight that middle income Americans feeling the gas squeeze already might be turning to those discount retailers. Just today Wal-Mart revealed earnings well above what they were expecting," ABC Correspondent David Muir said on ABC's November 13 "World News with Charles Gibson."
While the November 14 Wall Street Journal reported "tight controls on costs and inventory fueled a better-than-expected fiscal third quarter profit." However, Muir didn't credit Wal-Mart's competitive advantage with boosted sales, instead he pinned it on a weak economy forcing consumers to shop at Wal-Mart.
Muir predicted more problems for other businesses.
"The most affected - mid-priced restaurant chains like Chili's (franchised by Brinker International (NYSE:EAT)) and Applebee's (NASDAQ:APPB)," Muir said. "And at the mall, middle-of-the-road retailers will be hit hardest, as well. J.C. Penney's (NYSE:JCP) and Gap (NYSE:GPS) have already shown declines. Experts say discount stores like Wal-Mart will fare better because families will be looking for a deal."
Aaron Katsman, lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC, dismissed that theory and wrote on the BloggingStocks blog on November 13 that the Wal-Mart news is a sign our economy isn't in trouble, despite Muir's dour interpretation.
"This is just another sign that the US economy is strong enough to withstand the subprime mess, rising commodity prices, and the general negativity portrayed by the mainstream media," Katsman wrote. "Haven't we been warned that consumer spending is going to tank, because of the effect of the subprime meltdown, and rising fuel prices will keep shoppers at home. Well Wal-Mart, which derives so much revenue from the very shoppers that are supposed to be staying at home due to rising fuel prices, said that they expect consumer spending to be higher than expected."