Richard Thalheimer remembers the last time inflation was proving so challenging to US retailers: it was when he was trying to get The Sharper Image off the ground in the late 1970s and 1980s.
In 2006 he left the consumer gadgets chain he founded, selling his stake before its 2008 bankruptcy. Ever since, he has been investing the proceeds of the watches, massage chairs, iPods and Razor scooters he sold, building a portfolio worth up to $350mn with stocks including Amazon, RH and Home Depot.
“It’s been so much fun,” he said. “Until this year”.
As inflation races at levels last seen four decades ago, the retail sector that made Thalheimer wealthy is now making other investors poorer and stoking recession fears. This week, unexpectedly bad earnings announcements from Walmart and Target, two of its largest constituents, led to their steepest stock market falls since Black Monday in 1987.
Days earlier, analysts had been touting such companies as defensive shelters from the storm in tech stocks that had slashed the valuations of companies from Amazon to Netflix. Early this week, Baird named Walmart its top “recessionary playbook” idea.
But the shockwaves from Walmart and Target rippled through the wider retail sector and gave market bears a new concern: that inflation may now be biting consumers even before the Federal Reserve starts raising interest rates more aggressively.
Retailers were the biggest drivers of a broad market rout on Wednesday that pushed the S&P 500 stock index to its worst one-day fall in almost two years.
Until this week, the S&P 500’s consumer staples sub-index, which includes “big box” retailers such as Walmart along with businesses like pharmacies and food manufacturers, was still roughly unchanged for the year. The only other parts of the index that had avoided declines were energy and utility stocks, which had benefited from surging energy prices.
By the close of Thursday, however, the sub-index had fallen almost 9 per cent and was on track for its worst week since the start of the coronavirus pandemic in March 2020.
The retailers’ earnings flagged up not just one cause for concern, but three: that price increases may have reached the limit of what consumers will tolerate, that retailers are struggling to contain their own costs, and that unpredictable demand and new supply disruptions are forcing them to build up inventories.
The first of those three is being most closely watched for its broader economic resonance. “You’ve got a consumer that is starting to pull back,” said Steve Rogers, head of Deloitte’s consumer industry centre, whose surveys suggest that 81 per cent of Americans are concerned about rising prices.
Americans’ bank accounts may not have changed dramatically since last year, he said, but headlines about inflation have shaken their confidence. Some are trading down or holding off big purchases as a result, he added, particularly in discretionary categories such as clothing, personal care and home furnishings.
Walmart, long seen as a bellwether of the US consumer, noted that high inflation in food prices “pulled more dollars away from [general merchandise] than we expected as customers needed to pay for the inflation in food”.
Rogers and others, however, see retailers’ own cost pressures as a clearer driver of their changed fortunes than consumer pullback. At Walmart, for example, US fuel costs last quarter were over $160mn higher than it had expected — more than it could pass through to customers.
“We did not anticipate that transportation and freight costs would soar the way they have,” echoed Target’s chief executive Brian Cornell. Higher wages and costs for containers and warehouses are also weighing on retailers’ profit margins.
Some of those higher costs stem from the third force at work: a disrupted global supply chain that has left retailers scrambling to secure stock at a moment when demand for it is uncertain. “Their inventories are exploding,” Cathie Wood, chief investment officer at Ark Invest, wrote in a Twitter post on Walmart and Target.
The reason for carrying more inventory than usual is that “they lived through the stock-outs of the past two years and know what that cost them”, said Rogers.
Walmart chief executive Doug McMillon indicated that some of the build-up was deliberate, saying: “We like the fact that our inventory is up because so much of it is needed to be in stock.” Still, he admitted, “a 32 per cent increase is higher than we want”.
Target’s inventories rose even further, up 43 per cent from a year earlier, and it conceded that it had failed to anticipate consumer spending shifts in categories from televisions to toys.
“We aren’t where we want to be right now, for sure,” said Target chief operating officer John Mulligan, adding that “slowness in the supply chain” had forced it to carry more stock as a precaution.
Wayne Wicker, chief investment officer at pension plan manager MissionSquare Retirement, said it should not be surprising to see signs of consumers reining in some spending, but said this week’s results were nonetheless a “wake-up call” for some investors because many companies had until recently claimed they were handling inflation challenges well.
Walmart and Target both provided upbeat forecasts in their previous quarterly update, and did not pre-announce any changes before this week’s reports.
“Part of the price decline was reflecting the fact that the management of these large companies didn’t provide any indication that they were going to have such a miss,” Wicker said.
For Denise Chisholm, Fidelity’s director of quantitative strategy, this week’s reports did not provide convincing evidence that the economy is in trouble, but they spooked investors who were already nervous after earlier sell-offs.
Despite the visceral market reaction to Target’s results, for example, its new lower forecasts would only return profit margins to pre-pandemic levels.
“If there’s any differentiating factor compared with [previous bear markets], it has been the strength of earnings, so any kind of concern over earnings gives more volatility from a near-term perspective,” Chisholm said. But, she added, “despite a lot of the concern in the market, it is hard to reach an empirical conclusion that says recession is any more likely given what we’ve seen”.
Thalheimer, whose portfolio is down by about $50mn from its peak, thinks markets overreacted this week and is already wondering when it will be time to consider snapping up beaten-down retail stocks.
“During most of the big sell-offs of my lifetime — 2009, the [bust following the] dotcom bubble or 1987 — almost every one of these times within two years you [saw] very strong recoveries,” he said.
That will happen again, he believes, but with the combined uncertainties around supply chains, the war in Ukraine and historic inflation, “there are going to be some choppy waters ahead”.
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Key Passages From the US Supreme Court on Abortion Rights
The US Supreme Court on Friday struck down Roe vs Wade, the 1973 ruling that guaranteed a constitutional right to abortion, in one of its most consequential decisions on civil rights in years.
The arguments on both sides are lengthy and involved, and the final ruling comprised five separate opinions spanning 213 pages: the opinion of the court, two concurring opinions, an opinion agreeing only with the court’s judgment and a dissenting opinion.
Below are some of the most notable passages from each.
Opinion of the court, written by Samuel Alito
Much of Alito’s majority opinion matched a leaked draft from February 10, which was published by Politico in May.
To begin, Alito argued that the court overstepped when first deciding Roe.
As Justice Byron White aptly put it in his dissent, the [Roe] decision represented the “exercise of raw judicial power”, and it sparked a national controversy that has embittered our political culture for a half-century.
He argued that the case was wrongly decided, and poked at its reasoning. (He also cited Planned Parenthood vs Casey, another abortion case that affirmed Roe.)
Roe was egregiously wrong from the start. Its reasoning was exceptionally weak, and the decision has had damaging consequences. And far from bringing about a national settlement of the abortion issue, Roe and Casey have enflamed debate and deepened division.
Alito argued that there is no right to an abortion rooted in American “history and tradition”.
We hold that Roe and Casey must be overruled. The constitution makes no reference to abortion, and no such right is implicitly protected by any constitutional provision, including the one on which the defenders of Roe and Casey now chiefly rely — the Due Process Clause of the Fourteenth Amendment. That provision has been held to guarantee some rights that are not mentioned in the constitution, but any such right must be “deeply rooted in this nation’s history and tradition” and “implicit in the concept of ordered liberty”.
He reiterated the Roe court’s “errors” and lamented that the issue had been taken out of the hands of those who opposed abortion rights.
Roe was on a collision course with the constitution from the day it was decided . . . and the errors do not concern some arcane corner of the law of little importance to the American people. Rather, wielding nothing but “raw judicial power,” the court usurped the power to address a question of profound moral and social importance that the constitution unequivocally leaves for the people . . . The court short-circuited the democratic process by closing it to the large number of Americans who dissented in any respect from Roe . . . Roe and Casey represent an error that cannot be allowed to stand.
Finally, Alito wrote that court does not know, and need not consider, the implications of its decision.
We do not pretend to know how our political system or society will respond to today’s decision over-ruling Roe and Casey. And even if we could foresee what will happen, we would have no authority to let that knowledge influence our decision. We can only do our job, which is to interpret the law, apply longstanding principles of stare decisis, and decide this case accordingly.
We therefore hold that the constitution does not confer a right to abortion. Roe and Casey must be overruled, and the authority to regulate abortion must be returned to the people and their elected representatives.
Concurring opinion by Clarence Thomas
Thomas, widely considered to be the most conservative justice, agreed. He also said the court should perhaps go further and reconsider its decisions on contraception, same-sex relationships and same-sex marriage, citing Supreme Court cases relevant to each issue.
For that reason, in future cases, we should reconsider all of this court’s substantive due process precedents, including Griswold, Lawrence, and Obergefell. Because any substantive due process decision is “demonstrably erroneous,” we have a duty to “correct the error” established in those precedents.
Concurring opinion by Brett Kavanaugh
Kavanaugh, another conservative, wrote to share his “additional views”. He emphasised that the court was returning the issue of abortion to the people, rather than outlawing it.
To be clear, then, the court’s decision today does not outlaw abortion throughout the United States. On the contrary, the court’s decision properly leaves the question of abortion for the people and their elected representatives in the democratic process.
He claimed the constitution was “neutral” when it comes to abortion rights.
In sum, the constitution is neutral on the issue of abortion and allows the people and their elected representatives to address the issue through the democratic process. In my respectful view, the court in Roe therefore erred by taking sides on the issue of abortion.
And he wrote that court itself must be “scrupulously neutral” — a point to which the court’s liberals took exception.
In my judgment, on the issue of abortion, the constitution is neither pro-life nor pro-choice. The constitution is neutral, and this court likewise must be scrupulously neutral. The court today properly heeds the constitutional principle of judicial neutrality and returns the issue of abortion to the people and their elected representatives in the democratic process.
Opinion by John Roberts, concurring in judgment
Roberts, the chief justice, concurred with the court’s specific judgment upholding Mississippi’s 15-week restriction on abortions, but not with the dramatic scope of its decision. He called it a “serious jolt to the legal system”.
I would take a more measured course . . . Our abortion precedents describe the right at issue as a woman’s right to choose to terminate her pregnancy. That right should therefore extend far enough to ensure a reasonable opportunity to choose, but need not extend any further.
He reiterated that overturning Roe was unnecessary to deciding the case.
I would decide the question we granted review to answer — whether the previously recognised abortion right bars all abortion restrictions prior to viability, such that a ban on abortions after 15 weeks of pregnancy is necessarily unlawful. The answer to that question is no, and there is no need to go further to decide this case.
Dissenting opinion by Stephen Breyer, Sonia Sotomayor and Elena Kagan
The impassioned dissent by the court’s three-member liberal wing begins by pointing to the “half a century” during which Roe vs Wade “protected the liberty and equality of women”.
Respecting a woman as an autonomous being, and granting her full equality, meant giving her substantial choice over this most personal and most consequential of all life decisions.
They said they fear the “draconian restrictions” and punishments that states may now mete out.
Enforcement of all these draconian restrictions will also be left largely to the states’ devices. A state can of course impose criminal penalties on abortion providers, including lengthy prison sentences. But some states will not stop there. Perhaps, in the wake of today’s decision, a state law will criminalise the woman’s conduct too, incarcerating or fining her for daring to seek or obtain an abortion.
And in any case, they wrote, women’s rights have been curtailed.
Whatever the exact scope of the coming laws, one result of today’s decision is certain: the curtailment of women’s rights, and of their status as free and equal citizens.
The dissenters also took a direct shot at Kavanaugh’s neutrality argument.
When the court decimates a right women have held for 50 years, the court is not being “scrupulously neutral”. It is instead taking sides: against women who wish to exercise the right, and for states (like Mississippi) that want to bar them from doing so.
And unlike Alito, they specifically sought to address the real-world implications.
The disruption of overturning Roe and Casey will therefore be profound. Abortion is a common medical procedure and a familiar experience in women’s lives. About 18 per cent of pregnancies in this country end in abortion, and about one-quarter of American women will have an abortion before the age of 45 . . . [P]eople today rely on their ability to control and time pregnancies when making countless life decisions: where to live, whether and how to invest in education or careers, how to allocate financial resources, and how to approach intimate and family relationships.
They warned of the fragility of constitutional protections.
The American public, they thought, should never conclude that its constitutional protections hung by a thread — that a new majority, adhering to a new “doctrinal school”, could “by dint of numbers” alone expunge their rights.
Supreme Court justices often conclude their dissents by saying they “respectfully dissent” or, to hit a stronger note, that they simply “dissent”. On Friday, the court’s liberal bloc dissented “with sorrow”.
With sorrow — for this court, but more, for the many millions of American women who have today lost a fundamental constitutional protection — we dissent.
Original Source: ft.com
US Supreme Court Overturns Roe Vs Wade in Major Blow to Abortion Rights
The US Supreme Court has struck down Roe vs Wade, the legal decision that has enshrined the constitutional right to an abortion for nearly 50 years, in a dramatic ruling by the court’s conservative majority that will shake up American society, politics and jurisprudence for years to come.
In the decision authored by Justice Samuel Alito, the justices of the Supreme Court upheld a state law in Mississippi that bans abortion after 15 weeks. They also went further, saying that the Roe vs Wade ruling of 1973 was incorrectly decided. The court’s three liberal justices dissented.
The court’s ruling was one of its most intensely anticipated in years — even more so after a draft of the majority opinion heralding its final decision to overturn Roe vs Wade was published by Politico in April, triggering a highly unusual probe within the institution into the leak.
In denying a constitutional right to an abortion, the court has effectively given a green light for states to enact abortion laws that can be as restrictive as they wish. Several states run by Republican-led governors and legislatures have already passed laws that mean more restrictions on abortion will be automatically implemented if Roe is overturned.
The sweeping opinion in the Mississippi case was made possible by the appointment of three conservative Supreme Court justices during the presidency of Donald Trump, who secured their confirmation through the then Republican-led Senate. The court’s conservative majority is now so strong that it can afford to lose the support of Chief Justice John Roberts, who is considered a more moderate conservative, and still prevail in key rulings.
Earlier this year, the Democratic-led Senate confirmed Ketanji Brown Jackson, a liberal nominated by Joe Biden, to be a justice on America’s highest court. Since she is replacing Stephen Breyer, another liberal, her appointment will not affect the court’s balance of power.
The Supreme Court ruling on abortion was released with less than five months to go before November’s midterm elections, and may alter the political dynamic heading into the vote, though it is unclear whether it can overpower the impact of high inflation and economic perceptions as a factor for voters.
With polls showing that a majority of Americans opposed to overturning Roe vs Wade, Democrats are hoping that the ruling will trigger outrage, mobilise its base, and attract moderate swing voters who will see Republican positions on the issue as increasingly extreme.
But Republicans believe that disappointment with Biden’s handling of the economy, and high consumer prices, particularly for food and petrol, will still carry the day and give them a strong chance of recapturing control of the House of Representatives and possibly even the Senate.
Original Post: ft.com
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