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Wal-Mart's July Sales Gain Signals Retail Strength
Summary: Wal-Mart Stores Inc. announced that its same store sales for July grew by 2.4% year over year, at the high end of its previous guidance of 1-3%, and a significant improvement over the 1.2% increase in June. Other retailers are due to report their same store sales numbers Thursday. JP Morgan analyst Charles Grom ascribed the better-than-expected growth to more aggressive pricing and Wal-Mart's decision to launch its back-to-school campaign more than a week earlier than in previous years, on July 9th. Wal-Mart's 2.4% July growth is still below Target's revised guidance of 3-4%.
Comment on related stocks/ETFs: Wal-Mart's stronger-than-expected same store sales data further confuses the economic picture, because it follows weaker-than-expected Q2 GDP data, increasing evidence of a severe slow-down in the housing market, and a discouraging Beige Book report. The best way through this muddle is to look at longer-term trends. John Hussman, in a must-read article, says recent data all confirm that the US economy is headed for stagflation, lower corporate profits and thus lower stock prices. Birinyi Associates, in contrast, argues that the economy is heading for a soft landing.