LikeFolio Weekly Roundup

Market Sentiment: Fear Is Running High

Investors are jittery.

Several indicators show anxiety surging on Wall Street this week. The CBOE Volatility Index (the “fear index”) spiked to about 25 – its highest level since May – after spending months in calm territory.

Likewise, CNN’s Fear & Greed Index plunged into “Extreme Fear” with most of its components flashing warning signs. This backdrop of caution means markets have little patience for bad news.

The good news?

Even in a fearful market, some winners are still getting rewarded – but any missteps are being brutally punished.

As one strategist observed, “This is a coordinated risk-off trade — tech stocks, crypto, etc. on worries about valuations and leverage”. In other words, investors are quick to dump risky assets amid lofty prices and economic uncertainty.

How do we approach fear?

Andy lays it out best — check out this week’s Founders Call: Curb Stomped — What Now?

We’ve also learned some other things this week:

Off-Price and Value Retailers Win Big

Shoppers are hunting for bargains, and it’s showing up in earnings. Several value-focused retailers posted strong results this week, defying the gloomy mood.

TJX Companies, the owner of TJ Maxx and Marshalls, beat expectations and even raised its full-year outlook after seeing robust demand from deal-seeking customers.

TJX shares jumped on the news (we predicted this), now trading at all-time highs.

Similarly, Ross Stores (ROST) delivered a solid beat – comparable sales surged about 7% – and it raised its profit forecast for the year.

Off-price chains like TJX and Ross are thriving because inflation-weary consumers are flocking to discounts. As TJX’s CEO put it, their “value proposition and treasure-hunt shopping experience” continues to draw thrifty consumers (even higher-income shoppers) into stores.

The nation’s largest retailer, Walmart (WMT), also shone this week. Walmart reported a 4.5% jump in U.S. comparable sales, beating estimates, thanks in part to booming online grocery orders and strength across income groups. The retail giant hiked its annual sales and profit forecasts again heading into the holidays. Walmart’s stock climbed ~6% on the news. Management struck an optimistic tone: “Holiday is off to [a] pretty good start,” CFO John David Rainey noted, citing strong Halloween and early Thanksgiving demand.

The common thread: retailers that cater to value-conscious shoppers – whether through low prices or off-price bargains – are reaping the rewards. Value and necessity are winning in this high-fear environment.

One analyst pointed out a theme we’ve been touting for some time: bifurcation: “Walmart’s performance signals a bifurcated consumer landscape, where value-oriented giants thrive... while discretionary-focused peers like Target face headwinds.”

No Mercy for Target and Home Depot

If value retailers are thriving, some big names in discretionary spending are struggling – and markets aren’t giving them any leeway as we have seen over the past few months.

Target (TGT), for example, just reported its third straight quarterly decline in sales. Comparable sales fell 2.7% in Q3, a drop worse than expected. Target did eke out an earnings beat, but that wasn’t enough. With consumers pulling back on non-essentials (and ongoing issues like retail theft weighing on profits), Target’s stock has lost nearly -35% this year. In this fearful climate, even meeting lowered expectations with new leadership on board wasn’t immediately rewarded.

The story was similar for Home Depot (HD). The home improvement giant actually beat sales forecasts last quarter, but profits missed the mark, and it cut its annual outlook anyway. Home Depot now expects full-year earnings to fall 5% (a steeper drop than previously forecast) as Americans delay big-ticket home projects. Its CEO cited “consumer uncertainty and continued pressure in housing” hitting demand. Investors reacted harshly – HD shares fell on the report, though have rebounded today.

Even Lowe’s (LOW), Home Depot’s rival, took a cautious stance: Lowe’s matched sales expectations and beat on profit, but it trimmed its sales and earnings forecasts slightly for the full year.

The difference?

Lowe’s struck a more upbeat note about current trends (noting an improvement in November sales) and investors rewarded it – Lowe’s stock rose ~3% after earnings.

Bottom line: In a market this nervous, companies that under-deliver or even just meet already-low expectations aren’t getting any benefit of the doubt. Only clear winners are being spared. Target and Home Depot learned that the hard way this week, while Walmart, TJX, Ross, and Lowe’s proved that delivering value and notes of confidence can still attract investor love.

Holiday Shopping Outlook: Cautious Optimism

With Thanksgiving and Black Friday around the corner, what do these trends signal for the holidays?

Consumers are expected to stay thrifty. Multiple industry forecasts suggest a subdued holiday season in terms of sales growth. Target, for instance, is bracing for modest declines in Q4 sales and has been cutting prices on thousands of everyday items to entice cost-conscious shoppers.

On the flip side, Walmart’s strong quarter and raised outlook imply that shoppers will splurge when they see value – especially on groceries, essentials, and affordable gifts. Early signs from Walmart (good Halloween sales and momentum into Thanksgiving) offer cautious optimism that consumers will still spend for the holidays, but they’ll be hunting for deals and sticking to budgets.

• In practical terms, expect retailers like Walmart, Costco, and dollar stores to continue pulling in price-sensitive customers through year-end.

• Off-price chains should also benefit as gift-givers seek out bargains. Meanwhile, retailers focused on higher-priced discretionary goods could face a tougher season.

The overarching theme: value is king. Retailers that deliver low prices or perceived “bang for your buck” are likely to emerge as the holiday winners in an otherwise wary marketplace.

Tech Turbulence: Nvidia’s Wild Ride

Even the mighty tech sector wasn’t immune to this week’s volatility.

All eyes were on Nvidia (NVDA) – the chipmaker at the heart of the AI boom – and it delivered a blowout earnings report. We expected this. One also might have expected a euphoric rally, and indeed Nvidia’s stock initially jumped on the results.

But in a sign of the market’s fragile mood, those gains evaporated in hours. Nvidia’s stock reversed from up sharply to down over 3% by the close, dragging the broader NASDAQ lower with it.

What happened?

In short, investors sold the news, worrying that even Nvidia’s stellar growth might not justify its sky-high valuation. The company’s upbeat numbers “support the AI story,” but there is “broad skepticism” about whether the massive AI investments across the tech industry will pay off fast enough.

One thing some analysts were harping on is that a growing part of their revenues is in accounts receivable and inventories are up. 

This was painted as a negative but we don't think that matches the reality on the ground.

NVDA's customers are so desperate for compute that they literally have no place to plug in the machines and chips they're buying.  Much of NVDA's inventory and AR build is simply waiting to ship product to customers until they have DC power to plug it into!

Translation: this is an infrastructure bottleneck, not a demand problem.

This dramatic turnaround in Nvidia, nearly a $400 billion intraday swing in market value, shows how skittish the market has become. After a huge tech rally earlier in the year, traders are now quick to lock in profits. Concerns about interest rates are also weighing on sentiment: a surprisingly strong U.S. jobs report (delayed by the government shutdown) fueled doubts that the Federal Reserve will cut rates in December, which further soured the mood.

All told, Thursday saw one of the biggest intraday swings for stocks since the trade-war volatility of 2019. As one strategist noted, fear of a tech pullback “won’t go away” easily.

The takeaway: Nvidia’s rollercoaster week shows that even market darlings are on a short leash. Great earnings alone aren’t enough to sustain a rally when market fear and skepticism are this high.

Final Thoughts

In a week where market fear is elevated, we learned that there are still bright spots – but you have to be on the right side of the narrative.

Companies delivering value (for consumers or for investors) are being celebrated, while those disappointing an already nervous market are swiftly cast aside.

The high-level theme is clear: “risk-off” is the near-term mood. From retail to tech to crypto, caution reigns.

Yet, this backdrop also sets the stage for potential surprises.

If the holiday shopping season turns out a bit better than the dire predictions, or if inflation eases and central bankers signal friendlier policy, some of this fear could ease just as quickly as it spiked.

Until then, buckle up and stay nimble – it’s a market that rewards prudence and pounces on excess. In other words, keep an eye on the data, watch those sentiment gauges, and don’t be afraid to seek out value amid the volatility.

Even in a fearful market, opportunities remain for those who know where to look.

We’ll be following consumer shopping activity in the coming weeks VERY closely and expect to have an exclusive early read on the state of the consumer and surprising early winners and losers…stay tuned.