Yep, the market has entered a slow melt.
Investors have priced in about 6% growth from China this year (down from the government's targeted 7%) and ramifications across many industries from the plunge in oil prices. But what is not priced in, I think, are the decisions big U.S.-based companies will have to make into year's end with respect to capital spending in 2016 due to China's slowdown, the effects of the strong dollar on results and guidance, and what higher rates mean to daily business operations. I would not be surprised to see companies raise their dividends in 2016 by slower rates than in the recent past -- given the uncertain climate, investors may want to keep cash close to home.
One potential macro domino to fall: job losses from globally exposed companies outside of the oil patch and sleepy tech companies such as IBM (IBM) and Hewlett Packard (HPQ). And to track the prospect of this happening soon, I think paying careful attention to supermarket companies/dollar-store stocks is important.
To me, they offer a snapshot into the mindset of a consumer who works at the factories and low-paying IT jobs that haven't yet been offshored to India. These folks could be hearing rumors in the office about the potential for reorganizations, and may be tempering their grocery spending as a result.
Judging by the pressured shares of some top names such as Wal-Mart (WMT), Dollar General (DG) and Kroger (KR) in the past month, the direction of the economy may not be as certain and solid as Fed officials suspect. That's one reason why the market freaked out over the Fed's Stanley Fischer's weekend comments at Jackson Hole -- nobody believes the U.S. economy is healthy enough to withstand gradual rate increases.
Adding fuel to this topic are comments from Dollar General's new CEO Todd Vasos on the company's recent earnings call. I wasn't impressed with the company's quarter -- a 2.8% same-store sales increase with gas prices in the toilet and job growth picking up isn't too sexy. Here are some of the comments from Vasos that just make you think:
-- "At the same time, affordability is as important as ever to our consumers." I suppose finding deals is always important in the malls and grocery stores. But I would sure like to hear a dollar-store CEO saying the consumer wants value, but is also putting a couple of non-essentials in the plastic basket.
-- "More and more consumers are looking to Dollar General for her health and beauty needs." If one can't purchase toothpaste from low-price leader Wal-Mart after having a new job for almost a year, then, well, not good.
-- "We really haven't seen any indication that the consumer is spending anything more because she has additional wage money in her pocket. Our core consumer is a little different in that before she starts to spend, she really needs to have confidence and see a sustained ability that income will continue to come her way." Disturbing, but so true. Dollar General's same-store sales in the quarter were not hot by any means.
-- "We still continue to see the trade-down consumer gravitating toward Dollar General, which is great to see." Ideally, you want to see consumers trading up to Wal-Mart from Dollar General. Actually, consumers continuing to trade down isn't good altogether.
Campbell Soup (CPB) reports earnings at the end of the week. If the results from Wal-Mart and Dollar General were any signs, the cautious consumer likely led to a mixed quarter for the soup maker. (Campbell Soup is part of TheStreet's Dividend Stock Advisor portfolio.)