WSJ What’s News: “Will Walmart Gobble Up Other Retailers’ Holiday Sales?” – November 20, 2024

Hosted by Tracy Hunt for The Wall Street Journal

Introduction

In this episode of WSJ What’s News, host Tracy Hunt delves into the contrasting performances of two retail giants, explores significant developments in the defense sector, analyzes market movements, and examines trends in consumer finance. The episode provides a comprehensive overview of the top business stories shaping the world today.

Walmart vs. Target: A Tale of Two Retailers

Walmart's Robust Performance

Walmart reported impressive comparable US sales, increasing by 5.3% in the quarter ending October 25, compared to the same period last year. This growth underscores Walmart's enduring appeal, particularly in essential goods sectors.

Target's Struggles

Conversely, Target faced disappointing quarterly results, leading to a plunge in its shares and a lowered profit and sales forecast for the year. Columnist Jinju Lee attributes Target's underperformance to several strategic missteps, including stringent anti-theft measures that limited product availability and a lack of innovation in core categories like clothing and home products. Additionally, Walmart's success is siphoning market share from competitors, including dollar stores, as consumers prioritize necessities over discretionary spending.

Jinju Lee [07:17]: "Walmart has a natural advantage because the mix of things they sell is more heavily weighted towards necessities like groceries, whereas Target has a higher mix of sales in discretionary categories."

Market Implications

The divergent earnings reports highlight a shift in consumer behavior towards essential spending, benefiting retailers like Walmart that offer a broad range of necessities. In an environment where consumers are selective about their expenditures, only a few retailers are positioned to thrive.

Defense Sector Developments: Utah Drone Company Secures Pentagon Contract

Teal Drones' Breakthrough

The U.S. Military has selected Utah-based Teal Drones, a relatively unknown manufacturer, to supply thousands of small surveillance drones. This contract, potentially worth around $260 million, marks a significant milestone for the company and signals a broader trend in military procurement.

Defense Secretary Lloyd Austin [02:00]: "The landmines that we would look to provide them would be landmines that are not persistent. You know, we can control when they would self-activate, self-detonate and that makes it far more safer eventually than the things that they are creating on their own."

Strategic Insights

Reporter Heather Somerville explains that these drones are intended for use by individual soldiers, enhancing their capabilities in surveillance and reconnaissance. The adoption of Teal Drones reflects the Pentagon’s emphasis on electronic warfare resilience, drawing lessons from Ukraine’s use of similar technology.

Heather Somerville [04:16]: "The drones that this company, Thiel, makes are similar in some respects to what Ukrainians have been deploying. But what's probably more important is that Thiel took lessons from Ukraine to harden their drones against electronic warfare."

Industry Impact

Despite this significant contract, the Defense Department remains a minor player in the U.S. drone market, accounting for less than 2% of total annual drone sales. The prolonged procurement process, spanning over 15 years, highlights challenges in aligning military needs with technological advancements.

International Conflict: Ukraine Escalates with New Missile Deployments

Ukrainian Offensive Actions

For the second time this week, Ukrainian forces launched British-made Storm Shadow missiles into Russian territory, marking a significant escalation in the conflict. This development follows the recent authorization by the Biden administration for Ukraine to utilize U.S.-made Army Tactical Missile Systems (ATACMS).

Shift in U.S. Policy

The introduction of approximately 10,000 North Korean troops in Kursk has influenced the U.S.'s strategic approach, prompting Defense Secretary Lloyd Austin to announce the provision of anti-personnel mines to Ukraine. These mines are designed to be safer for civilians, addressing concerns over the lethal potential of Ukraine's current arsenals.

Defense Secretary Lloyd Austin [02:00]: "They're fabricating their own anti personnel landmines right now... that makes it far more safer eventually than the things that they are creating on their own."

Market Movements and Corporate News

Stock Market Overview

U.S. markets exhibited mixed performance, with the Dow Jones Industrial Average closing 0.3% higher, the S&P 500 remaining flat, and the Nasdaq Composite slipping by 0.1%. Notable corporate highlights include:

• Nvidia's Surge: Nvidia reported a 17% year-over-year increase in sales, reaching $35.1 billion, surpassing analyst forecasts. The company's profits nearly doubled, reflecting the robust demand driven by the artificial intelligence boom.

• Legal Developments: Bill Hwang, founder of Archegos Capital Management, was sentenced to 18 years in prison on charges of securities fraud and market manipulation. Hwang has denied wrongdoing and plans to appeal the verdict.

Consumer Finance: Rising Auto Loan Delinquencies

Increasing Delinquencies

Data from JPMorgan Chase indicates that delinquencies on auto loans have risen to 3.8%, the highest since 2010. Despite this trend, Wall Street remains unconcerned, as investors continue to purchase bonds tied to car loans, betting on the resilience of the U.S. economy to prevent widespread defaults.

Understanding Asset-Backed Securities

Reporter Vicky Huang explains that these bonds, known as asset-backed securities (ABS), bundle car loans and other debts into investment products. Higher-risk ABS offer higher yields, attracting investors confident in the economic stability and the financial robustness of higher-income borrowers who own additional assets.

Vicky Huang [10:52]: "These bonds are called asset backed securities... the higher level debt of asset backed securities tend to get lower ratings, but because the higher risk embedded, investors in those debt tend to get higher yields."

Investor Confidence

Wall Street analysts believe that the strong U.S. economy and the financial stability of higher-income consumers mitigate the risks associated with rising delinquencies among lower-credit borrowers. This confidence is reflected in the 17% increase in sales of bonds backed by the riskiest auto loans this year.

Conclusion

This episode of WSJ What’s News provided a deep dive into the contrasting fortunes of Walmart and Target, significant advancements in defense technology, escalating international conflicts, notable market and corporate developments, and trends in consumer finance. The comprehensive analysis underscores the dynamic interplay between consumer behavior, corporate strategy, and broader economic factors shaping today's business landscape.

Produced by Anthony Bansi with supervising producer Micah Kosmitis. For more insights and detailed discussions, listen to the full episode of WSJ What’s News.