CHRIS VERSACE: Good morning, Action Alerts PLUS members. It's Tuesday, August 16. The stock market is opened up, and we've got retail earnings as well as some fresh looks at the housing economy and the manufacturing economy. Let's break it all down.
July housing starts came in much weaker than expected, falling 9.6% month-over-month. To us, that says the multiplier of consumer spending is poised to weaken. We also got July industrial production, which came in stronger than expected, and that's a positive for several AAP holdings.
When we look at the data, the month-over-month increase was really tied to a large pickup in motor vehicle assemblies. That's going to be a very big positive for the shares of Ford. It also indicates that supply chain issues continue to improve and that the chip shortage, more likely than not, continues to abate. Good news, again, for Ford.
We also had Home Depot report better than expected same-store comps for its July. But remember the comments we just made about the housing market? Odds are that, as starts continue to weaken, the flow-through is going to hit Home Depot's professional segment of revenue. Also, this morning, Walmart reported it came in-- earnings came in stronger than expected.
However, inventories were still up 25% year-over-year, down only modestly from record levels exiting their April quarter. Now, Walmart did keep its guidance intact. That suggests, however, slower spending ahead with consumers trading down. We also continue to see more protracted time with the company working down its inventories. More likely than not margin, pressures at Walmart will continue to remain.
Granted, we're not involved with Walmart. But what does this tell us? It says that we're likely to see a challenging earnings season ahead for retailers. Retailers are likely to issue conservative comments about the consumer, and, again, they're going to continue to be strapped with slowly working down those excess inventory levels.
In addition to the inventory level, however, there is some fresh concern about the consumer. ZipRecruiter last night slashed its outlook, as companies continue to slow the pace of hiring. Reports suggest that Apple is also reining in its spending by letting a series of contractors go. Chatter suggests that Google is contemplating job cuts.
We're seeing more layoffs at startup companies. And what this tells us is, as companies continue to adjust their businesses for the coming months, i.e. a slowing economy, we're likely to see more layoffs. This runs the risk of even slower consumer spending in the coming months.
Now, we will say that, given all of that, we continue to like our shares of Costco. Remember, for two reasons, Costco is not only a differentiated retailer, giving its membership business model, but it is where consumers go to stretch those disposable spending dollars they do have. And comments from Walmart that consumers are trading down certainly plays into that thesis.
Meanwhile, while all of this is happening, stocks have continued to stare down technical resistance. It's something we've been talking about. Bob, I believe, has been very vocal, calling out the 4,300 level on the S&P 500. And it's important because over the last six to eight weeks or so, stocks have been on a tear.
And that has us revisiting some investment ratings for holdings inside the portfolio, and we may continue to do some prudent trimming, locking in some of those robust gains that have emerged over the last several weeks. Odds are we'll look to redeploy some of that return cash into positions with stronger legs for the coming quarters. That's today's Daily Rundown. We'll be back with you tomorrow.