Weekly Newsletter - Week of 8.22.2021
What's Happening in Retail?
This week we saw stocks throughout the entire retail industry pullback after a big week of earnings from companies like Home Depot, Walmart- Costco, Target, and others. Over the past several months, the retail industry has been one of the hottest sectors on the market. In fact, there are 13 different retail stocks within the S&P 500 that have all gained at least 80% this year. Additionally, the SPDR S&P Retail ETF is up over 75% in 12 months.
Why Has Retail Been so Hot?
The pandemic has had an interesting effect on all of retail. Many companies were forced to rapidly expand their e-commerce and digital operations. Many brick-and-mortar companies are now some of the most dominant players in the e-commerce space. Consumer staples like Target and Lowes are prime examples as both of their stocks are up over 35% in the last year. This has primarily been driven by their ability to focus on same-store pickup, delivery, contactless pickup, and other key factors in the pandemic age.
Then retail had the added benefit of the great reopening. After spending the better part of a year indoors, people have been so eager to get outside and resume their lives! Retail was once again a prime benefactor from this shift in consumer spending. The apparel leg of retail sectors has been leading the bull market over the last several months. With personal savings inflated, due to depressed spending over the last 12 months, people have been excited to get outside and start spending money again.
Retail Tumbling
Shares of retailers and other cyclical components have begun to tumble over the last several weeks. Just recently, the Commerce Department showed that retail spending by consumers dropped sharply in July. Retail sales, a mix of online, store, and restaurant sales showed an overall drop of over 1% in July. The number of transactions being completed inside stores also decreased. This was a prime reason pandemic winners like Home Depot and Lowes each dropped over 4% this week. This poor news had a trickledown effect, as the small-cap index also plunged this week. The uninspired economic data came just one day after China reported slower than expected growth for their recent quarter as well. This week, we also heard more discussions about the Fed beginning to scale back their economic recovery policies. This week, we'll be looking for new data points that may represent a change in investor sentiment.
DraftKings Making More Bets
Last week, we reported that DraftKings (DK) was looking to become a new player in NFT and digital art game. With so many opportunities for signed memorabilia or rare items, it was a no-brainer the stock jumped almost 5% on the news. This week, DK just announced a new plan to acquire Golden Nugget online gaming in an all-stock transaction- the deal is valued at over $1.5B.
The acquisition will allow DraftKings to leverage the Golden Nugget’s established iGaming experience. Additionally, the Golden Nugget already has over 5 million customers in its database. CEO for DraftKings cited how this deal would immediately allow them to reach a broader market. They see many opportunities to cross-sell their customers across the growing platform. This is a huge deal for DK, as it’s partnering with another proven global player in the gaming space. With much of DraftKings technology built in-house, this is also expected to help drive down the total cost to operate the Golden Nugget. With the NFL season right around the corner, DK is doing a great job building excitement for its platform.
Bring Out the Booster Shots
This week’s Covid updates center around the growing concern additional booster shots might be needed for the vaccinated. Studies continue to be conducted which may point to a drop in overall antibody protection months or weeks after receiving the vaccine. As with the entire vaccination process, we continue to gain more information day by day.