The next reopening trade has arrived: Morning Brief

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Tuesday, May 31, 2022

Today's newsletter is by Myles Udland, senior markets editor at Yahoo Finance. Follow him on Twitter @MylesUdland and on LinkedIn.

Almost exactly a year ago, we wrote about a surge in American shoppers buying clothes.

Spurred by a final round of COVID-related stimulus and an economic reopening, Americans rushed out to clothing retailers to overhaul their wardrobes after a year-plus spent mostly at home.

Earnings reports from the retail sector published over the last few weeks, however, shows this year's version of the reopening impulse from consumers looks quite different.

And like so many other elements of markets and the economy right now, in consumer habits we're witnessing a return to some of the themes and trends the predominated in the years leading up to the COVID-19 pandemic.

Which brings investors to the next leg of the reopening trade.

After the market close on Thursday, Bloomberg Opinion columnist Conor Sen flagged the divergent stories told in earnings reports from Ulta Beauty (ULTA) and Gap (GPS) released that afternoon.

It's in this divide that we see what this reopening trade 2.0 — or is it 3.0 by now? — is all about: a return to 2019-style experiences and a move away from the 2021-era cautious re-engagement with the world.

Or to put it in "Before Times" parlance, consumers are more excited about experiences than things.

"Consumers continue to be highly engaged with the beauty category as they participate in more in-person activities, engage in more travel, and lean into experiential spending," Ulta CEO David Kimbell told Wall Street analysts on the company's earnings call. "And while macroeconomic pressures, such as rising inflation are top of mind for consumers, their resilience and emotional connection to beauty continues to drive the recovery of the category."

For investors looking to the U.S. consumer for guidance in judging the strength of the economic recovery, the last several weeks have been challenging.

The much-discussed earnings disappointments from Walmart (WMT) and Target (TGT) have since become part of a more nuanced story about how people are choosing to spend their dollars and less of a flashing red warning that spending has dropped off a cliff.

Comments from major airlines last week suggest the summer travel season should approach pre-pandemic norms. And other parts of the household budget — such as grocery spending — continue to face pressure from discerning consumers battling multi-decade highs in inflation. Apparel, it seems, is part of this under-pressure bucket as well.

"We entered the first quarter anticipating a slowdown as we lap the impact of the stimulus of the prior year," Gap CEO Sonia Syngal said during the company's earnings call. "However, we began to experience a more profound weakness during the quarter at Old Navy and, to a lesser degree, at Gap North America, as those brands were most exposed to the rising inflationary environment impacting our lower-income customer."

In any market environment, management teams that miss targets will always be able to cite an external factor that weighs on results. Between inflation, supply chain issues, and a lack of fiscal stimulus, the list of outside influences challenging consumer-facing businesses today is extensive.

And there's no doubt that both Ulta and Gap have stories unique to their business impacting results today.

After serving as one of the best-performing S&P 500 stocks of the 2010s, Ulta's core makeup business came under pressure in 2019, and a turnaround in that part of the business has bolstered recent results. Gap management, meanwhile, spent considerable time on their call talking about how its spring and summer lineup didn't "resonate" with its customers.

But when business leaders like Jamie Dimon and Warren Buffett tell investors not to bet against the U.S. economy, they're really cautioning against bets that the U.S. consumer won't find a way to continue spending money.

And for the time being, the changes in these consumption choices continue to count as new phases of an ever evolving reopening trade.


9:00 a.m. ET: FHFA House Pricing Index, month-over-month, March (2.0% expected, 2.1% during prior month)

9:00 a.m. ET: House Price Purchasing Index, quarter-over-quarter, Q1 (3.3% during prior quarter)

9:00 a.m. ET: S&P CoreLogic Case-Shiller 20-City Composite, month-over-month, March (1.90% expected, 2.39% during prior month)

9:00 a.m. ET: S&P CoreLogic Case-Shiller 20-City Composite, year-over-year, March (19.85% expected, 20.20% during prior month)

9:00 a.m. ET: S&P CoreLogic Case-Shiller U.S. National Home Price Index, year-over-year, March (19.80% during prior month)

9:45 a.m. ET: MNI Chicago PMI, May (55.5 expected, 56.4 during prior month)

10:00 a.m. ET: Conference Board Consumer Confidence, May (103.5 expected, 107.4 during prior month)

10:00 a.m. ET: Conference Board Present Situation, May (152.6 during prior month)

10:00 a.m. ET: Conference Board Expectations, May (77.2 during prior read)

10:30 a.m. ET: Dallas Federal Reserve Manufacturing Activity, May (1.5 expected, 1.1 during prior month)



Kirkland's (KIRK) is expected to report an adjusted loss of $0.33 per share on revenue of $105 million


HP (HPQ) is expected to report adjusted earnings of $1.05 per share on revenue of $16.14 billion (CRM) is expected to report adjusted earnings of $0.95 per share on revenue of $7.38 billion

Victoria’s Secret (VSCO) is expected to report adjusted earnings of $0.84 per share on revenue of $1.48 billion

Ambarella (AMBA) is expected to report adjusted earnings of $0.37 per share on revenue of $90.02 million

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