Walmart vs. Target, McDonald's outbreak: Asking for a Trend

After the Dow Jones Industrial Average (^DJI) and S&P 500 (^GSPC) snapped their multi-week win streaks and the Nasdaq indexes (^IXIC, ^NDX) continue to move higher, Julie Hyman examines the leading headlines of the trading day on Asking for a Trend.

Yahoo Finance Senior Reporter Brooke DiPalma breaks down the retail battle between Walmart (WMT) and Target (TGT) as both compete for consumers' cash.

Placer.ai's head of analytical research, R.J. Hottovy, explains how McDonald's (MCD) E. coli outbreak may not mirror Chipotle’s (CMG) in 2015.

This post was written by Naomi Buchanan.

Video Transcript

Hello and welcome to asking for a trend.

I'm Julie High man and for the next half hour breaking down the trends of today that will move stocks tomorrow.

There's a lot to keep track of.

So we're focusing on what you need to know to get ahead of the curve here.

Some of the trends will be diving into markets ending the week on a mixed note.

Overall, a tough one for investors is rising bond y way on the equity market.

We've got the takeaways from the trading day straight ahead and the battle for your shopping dollars.

The competition between Wal Mart and Target always tense but Wal Mart has been leading the way, especially as consumers seek out cost savings that said recent discounts that target have had more people coming in the door according to one analyst will get those details coming up and one of the busiest trends in the alcohol business is going by free, the rise of non alcoholic wine and spirits, highlighting a shifting tide in consumer taste.

We got the founder of one wine maker that's jumping on that trend to take a close closer look, market closing mix to end the week as treasury yields ripped higher.

Yahoo finance is Jared joins us now with the trading day takeaways really breaking a weekly winning streak for stocks.

Yes, we did.

We broke two, but we actually continued to.

So let me just break that down.

The dow and the S and P 500 they were running six weeks straight up to the upside.

By the way, they have now basically flattened that so they are no longer in that streak, but the NASDAQ composite and the NASDAQ 100 they have extended that to seven weeks here.

Why am I talking about this?

That's because they've been moving in opposite directions on certain dates and it gets back to sector rotation.

So I thought we'd show just the sector action this week as we were noting a few minutes ago at the closed consumer discretionary, the only one in the green that's thanks to Tesla being up 20% in one day for the most part, I think uh the higher dollar and the higher bond yields have kind of been eating into equity returns.

So, so, and, and what one of the things that, that you and I were talking about earlier is buy back, sort of providing a bit of a floor under the market.

There are times that companies can buy back stocks and there are times they're not allowed to.

Where are we?

All right.

So we are just emerging into the time of year when companies can buy back their own stock, this is tied to the earnings cycle.

So when they're going through earnings announcements a few weeks before, sometimes a few weeks after, they don't want any or not after, but before they don't want anything dissuading the public, so they will have to cease their buybacks, but that is now resuming.

And so this is something that happens four times a year earnings four times a year.

And here's Goldman Sachs, we maintain our 2024 buyback growth forecast of 13%.

So 13% ahead of last year and also introduce a 25 2025 forecast of 15%.

So you got a big buyer in the market.

Yes.

And as you can see, this goes all the way back to 2011, this is almost $1 trillion worth.

So this is just a huge bid.

In fact, they're saying in November alone, this is worth $6 billion worth of daily v wop demand.

So that's just another, you know, kind of backdrop to the stock market.

And we're thinking all right, all the election uncertainty that's over in November.

Uh You might start thinking a lot of this has been pulled forward, but I don't want to get again, fingers crossed by the way that it's over in November.

Well, you know, um yes, we talk a lot about this Santa Claus rally the yada yada, but you, you've got a little maybe Halloween seasonality to talk about too trigger tende come on.

There are a couple different ways we could go with that.

But this is uh much like the Santa Claus rally, which is the last few days of the year.

Plus the first few of the next, this is the last four trading days of October.

So we capture Halloween and then the first three trading days of November over the last 30 years, most of these markets have been up 20 5, 23 24 25 of those 30 years.

So the Dow has an average return of almost 2%.

The NASDAQ 2.43%.

S and P 500 a little bit more than the Dow, almost 2% and small caps for 2002.34%.

So not as well known as the Santa Claus rally.

But I think uh another one that the history books have anyway, anyway, said is very consistent trick or 10, I guess tend in, in this case.

Yes.

All right.

Thanks a lot, Jared in the fight for America.

Shoppers, Walmart still dominating target year to date.

Shares of Walmart are up, nearly 50%.

Target shares up just about 7% to Palma joins us now to break down.

What is driving the momentum for Walmart?

Hi, Brooke.

Hi Julie Walmart.

Certainly keeping up the momentum that we've seen in recent years as consumers really look for those value deals for those low prices, prices, especially when it comes groceries.

And that's what Walmart dominates.

That groceries make up about 60% of Walmart's us sales.

It's also known that grocery prices at Walmart are about 10 to 12% cheaper on an average basket of food target.

On the other hand, well, it only makes up between 20 to 25% of sales and so target falling a bit behind just in terms of what exactly the consumer is right now.

But what we do know is that target has taken major price cuts in order to entice consumers and get that foot traffic back.

And we know they lowered prices on 5000 goods.

Now they plan to lower prices prices another 2000 goods ahead of the holiday season and should discretionary come back after it's been down for 10 quarters, there's some on the street that are optimistic that it will come 2025 that will be good for Target.

Yeah.

And you know, we always talk about them, you know, vying for shoppers, but of course, these companies don't just make money from shoppers.

Actually, advertising is an increasing part of their revenue stream, uh through ecommerce.

So what are, what are we hearing from Walmart on that front?

These higher margin businesses doesn't just have Walmart excited but definitely has investors excited as well.

We know that Walmart has been investing in their ad business called Walmart Connect and that's actually grown about 30% year over year.

Now, Target does have an ad business.

They don't discuss it as much, but it's called Target Round All.

And, and what we know is that they do expect to end the full fiscal year in the high teens growth year over year.

And another higher margin business that they're definitely looking at Wall Street is keeping a close eye on is e commerce.

We know that Walmart's e commerce business is not profitable yet, but Wall Street certainly keeping an eye on that and also keep an eye out on memberships.

Walmart has a membership that they launched back in 22 money that goes for about $98 a year.

Target just came out with their membership bottle this year.

It's $99 a year.

So target is a bit of catching up to do when it comes to this membership business.

Walmart's had it for a while, but certainly between e-commerce, their ad business and membership, these, all these retailers are really seeking other ways to make fun of a. I did not realize that Walmart's ecommerce business is not profitable just yet working on it.

Ok.

Interesting.

Thanks, Brooke.

Well, with Halloween just days away, it's a matter of time before holiday.

Music starts creeping on the playlists and everyone starts shopping for gifts.

Joining us now to discuss the state of the consumer and how retailers like Target and Walmart are position heading into the holidays.

And before then RJ had to place a head of analytical research.

Uh Good to see you here.

So you just heard the discussion we were having about sort of target versus Walmart.

What's getting people uh in the door?

You guys look at how many people are coming in the door.

So what are you seeing in terms of those trends between those two?

Yeah, it's very interesting.

I mean, I think if we look at this year, it has really been a very deal driven consumer, we've actually seen visits up in the low to mid single digits for much of retail.

But honestly, we've seen a little bit of Target and Walmart both ahead of that as those rollbacks on those different products came in.

Uh I've been very good about driving visits and taking share from, I think traditional grocer from restaurants.

Um I think it's been very interesting to that.

Um, we also see very holiday driven consumer.

That's one of the trends that we've observed the last couple of years is that a lot of that, you know, softer spending takes place during the shorter periods, but people are willing to come out for holidays, uh, whether it be early season holidays, uh, you know, Valentine's Day, Mother's Day, Father Thursday or back of the year holidays.

Uh, we're seeing early progress on Halloween starting to see you holiday promotions as you pointed out as early as October.

Some of that has to do with a shorter window this year, but generally speaking a lot of visits, but it's also a consumer that's looking for deals, maybe spending less per visit.

But at the same time, healthy visitation trends.

Yeah, I was going to ask what you're seeing around deals around promotion and whether there are significant upticks in traffic.

I know like Target has something, it calls Circle Week, which is the its membership program but you know, it offers deals during those times.

Does it see an increase in traffic?

They do?

And we, we generally see this halo effect with the mid October promotion period that we're seeing and whether that's Target Circuit Week or uh Walmart's promotions or Amazon, uh Prime deal days.

Uh Certainly there's a halo effect and we generally see some pretty good strength around that uh for the retailers.

They're testing the durability of their supply chains ahead of the big holiday push.

Maybe they're even looking to clear your inventory a little bit earlier again, given the short shorter window this year.

But generally speaking, we do see a nice pick up, uh, saw about a 2% lift in the week that uh you know, Target had the, uh the Target Circle week.

So we do see a pretty good pick up and consumers are definitely responding to the deals right now.

Le let's take the deal a topic and move it over to an area, you know, a lot about which is fast food, uh fast food, getting a lot of attention this week, mcdonald's having that E Coli outbreak Starbucks coming out, um, with a pretty dismal numbers for, uh, this most recent quarter.

Um, how much is value, you know, driving the conversation there also, it's, it's a big part of the conversation and frankly, what we're seeing is a little bit of slow down across the QSR sector and, um, you know, restaurant space in general as some of those summer promotions that some of the value wars that we saw running in June and July have started to pare back.

I think a lot of the retail or the restaurants are uh in a wait and see mode.

That's we, we drove people in during those months.

What kind of visit frequency do we get after that?

Did it help to drive incremental visits after that initial promotional period?

Uh Right now data says it's been a little bit slow there.

We see a lot of that traffic going back to the grocery store channel to Walmart and target to the Aldi's and value grocers of the world.

Um So that's where we're seeing it.

So value is very much front and center.

We did see a pull back in some of the promotional activity from the QSR and other restaurant chains.

And right now we're seeing that visitation trend shift back to the uh food at home channel if you will and away from food away from home.

And so be interesting to see how that plays out.

We do see a little bit of pressure there.

Um, you know, we are going to see mcdonald's run their $5 meal deal promotion at the end of the year.

Obviously, there's some distortions with the E call I news a little early to see what the visitation impact.

But we'll have some more news on that next week, but it's been interesting to see what's going to happen on that category.

Yeah, definitely.

We're going to keep an eye on this summer.

So that's really interesting what you're saying between the food at home, fast food, sort of migration back and forth.

Um, just to zero in on the mcdonald's situation for a second here.

RJ.

Um, Chipotle of course, has had, had this kind of, uh, troubles in the past as well and saw a pretty sustained dip in traffic.

What do we see then?

And as you say, it's early days, but how is that sort of applicable to, to mcdonald's now?

Yeah, I think there's really two differences here with the Chipotle situation.

One is they were never able to identify what happened.

It was always kind of a mystery.

And so at the same time, a lot of consumers were wondering, is my food safe, they never could figure out exactly what product it was, what stores we saw the impact from.

And so I think that led to a lot of questions and a lot of uncertainty for consumers.

So I think that's a big difference.

I think mcdonald's has come out and pretty clearly identified what the cause was and put, got a pretty good game plan.

At least we'll articulate that.

I think next week the other big difference too is Chipotle really had a double whammy.

It wasn't just the E coli they had a neuro virus situation immediately after that.

And so I think if you compare the two, there obviously are similarities, there's some, you know, shock to the system for consumers when they hear this.

Uh There's usually a pause and, you know, II I think it's pretty obvious we will see an impact of visitation trends, but it really comes down to being able to identify the problem and communicate what they to solve and prevent that from happening.

I think mcdonald's has done a good job in that.

So it may not have the same impact as we saw with Chipotle Chipotle.

It was kind of a, you know, a snowball effect.

You saw continued bad news and really there were still a lot of questions that couldn't be answered.

This is a case where I think mcdonald's has at least a pretty good handle on it.

Uh Certainly there's gonna be an impact, it is gonna turn off some consumers, but at the same time, uh I don't think it's gonna have the same impact.

Uh But there are still some questions that need to be addressed RJ.

Thanks a lot.

Good to see you.

Thank you, sit around.

We've got more asking for a trend still to come.

You might have heard of Dry January, but the Sober Curious Movement has now added Sober October to its calendar.

Joining us now to talk more about the non alcoholic industry is Rachel Martin, founder of Oceano Wines and Oceano Zero.

And then of course, there are people who are sober curious or mix it up all year long and don't need October or January to do it.

Rachel.

Thanks for being here.

Thanks so much for having me.

Now, I think your path is really interesting because you're a winemaker.

First, you make regular alcohol with alcohol wines and then you decided to develop non alcoholic wine.

So talk me through that journey and how that ended up.

Well, I've been making wine for about 20 years, starting with my family's winery.

And then I founded my own winery, traditional wine chardonnay and pinot noir.

And then I noticed the trend of non alcoholic wines and the sober curious movement.

So I did my bit of investigating, tried everything that I could find and what was lacking was quality and talk about vineyard and things that really make wine special.

So I decided that since I'm already producing ultra premium wines that I could pivot if you will and add the non alcoholic wines to uh to my portfolio.

And now we're doing reduced alcohol as well.

Oh, interesting.

And, and when did you start doing the non alcoholic wines?

Uh we launched uh last year in October.

In fact, uh with a one year anniversary, it is uh we launched with the Pinot Noir, ultra premium single vineyard Pinot Noir.

We work with grape growers.

So it's really important that non alcoholic and low alcohol wines can continue to support the wine industry and the grape growers as alcohol consumption wanes.

I'm always curious about how this stuff gets made.

I don't know how much you can say for proprietary reasons, but obviously, a wine is a fermented product.

That's what creates alcohol.

Do you then reverse it and take it out or how does that work?

So we make our non alcoholic and low alcohol wines just like our traditional wine.

So we start with sustainable vineyard practices and we hand harvest, goes to the winery for, you know, very high quality crafted alcoholic wine production.

And then at the last step after aging, we remove the alcohol by a process called spinning cone column.

And then we add a little bit of sugar to balance the lack of alcohol.

Um which uh we actually are non alcoholic wines are the lowest calorie, non alcoholics out there are um Oceano zero is the name of our non alcoholic uh line and our Pinot noir is only five calories per glass and the Chardonnay only six.

So it's low alcohol, sorry, low calorie ultra premium with minimal ingredients.

Um And what kind of demand have you been seeing for these products?

I mean, you and I were talking a little bit um off camera, you know, we've talked to some folks in the beer industry who have gone non alcoholic, that is more of a sort of a visible growing area.

But, you know, wine obviously is part of the part of the equation too.

What's really interesting is since non alcoholic wines are pretty hard to find, especially really high quality people are searching on the internet.

So we've um been discovered by consumers looking for non alcoholic wines, which increased our sales by 500% online.

But what's really interesting is it also increased our alcoholic wine sales by 200%.

So what that tells you is people are moderating.

They're not necessarily a sober consumer, but they're a sober, curious consumer.

So you didn't have as much of an online business before and this has kind of made that explode that this definitely boosted us big time online.

We had some sales, you know, we had the COVID and things went up and down.

However, um it really was the launch of our non alcoholic wines that we really saw this boost in sales.

Really interesting stuff, Rachel.

Thanks for coming in.

Thank you so much.

Thank you coming up.

We're dissecting our chart of the day mapping out the correlation between economic data and yield.

We're asking for a trend on the other side, for our chart of the day yields and economic surprises.

Yahoo Finance is Josh Shaffer joining me now with a closer look.

Hey, Josh.

Hey Julie.

Yes.

So what we're looking at here in purple is the 10 year treasury yield which has been recently picking up.

And so we were curious why has the 10 year treasury been moving up?

Right.

And Callie Cox over Red horse wealth management slapped the city economic Surprise Index on this chart and it helps explain why.

So the city economic Surprise index measures how much economic data is coming in better or worse than expected, worse than the street was expected.

You can see here that's been picking up.

So part of what we've seen as this big moving treasury yields that we've been talking about a lot on the show.

What's actually been pushing that higher part of the reason it been moving higher is because economic data has come in better than expected and has been moving higher.

This we were talking earlier on the show to, to Zach Hill, the head of portfolio strategy at Horizon Environments investment, sorry.

And he said that this could actually be a good sign even though yields are going up sometimes that's bad for stocks.

Zach says that might not be bad.

Let's take a listen to why, why are interest rates moving if rates are moving down?

Because the fed has got to cut more because we're going into a recession, that's not good for equity markets, even though policy is going to be easier.

Conversely, if interest rates are going up because, um, economic growth is stronger and we can live with higher interest rates.

The economy's steady state is just a little bit higher than it was in the 20 tens period, which certainly is the way that, that we lean in terms of how we're thinking about rates.

Then that's not a bad thing for, for equity markets.

That's actually quite a good um overall environment.

So Zach pointing out there really the market action that we've seen over the last month, right?

So I have the tenure up here.

You can see yields have been coming up for the last month.

Let's flip over to the S and P 500 look at what that's been doing for the last month that's been going up because as Zach said, if this is because economic data is coming in better than expected, that's a positive sign for corporate, that's potentially a positive sign for earnings, I want to flip back to the 10 year one more time here just to point out when this hasn't been a good scenario.

So the reason we're highlighting this is because of this move, we saw back in March and April 10 year, 10 year yields rose above 4.5%.

A level that strategists tell me is perhaps a key level moving forward here as we've been moving up and that is what caused part of the way on stocks.

We had that 5% draw down in April seem to be partially driven by that move higher in yields right now.

Julie, though it seems like everyone is relatively ok, even though we're watching the 10 year shoot up quite significantly.

Yeah, we'll see if there's some sort of threshold where that starts to change, but I guess we haven't gotten there yet.

Thanks, Josh.

Let's wrap on today's asking for a trend.

Be sure to come back Monday at 4:30 p.m. Eastern for all the latest market, moving stories affecting your wallet.

Have a great weekend.