Wal-Mart's 'Solid' Holiday Forecast Has 'World News' Bearish on Economy

     Upon the news of Wal-Mart’s robust third-quarter earnings and predictions of a “strong” holiday shopping season, the Dow Jones Industrial Average (DJIA) surged into positive territory, closing up 320 points after several days of tough losses.


     “The Bentonville, Ark., discounter said it now expects fourth-quarter earnings at the high end of a forecast given last month,” James Covert wrote in the November 14 Wall Street Journal.


     However, the rosy news from the world’s large retailer, Wal-Mart Stores, Inc., (NYSE:WMT) wasn’t perceived by ABC News as a positive sign for the economy. In fact, it was portrayed by ABC Correspondent David Muir as a sign of economic weakness in a story about gas prices hurting the economy.


     “[T]here's already evidence tonight that middle income Americans feeling the gas squeeze already might be turning to those discount retailers. Just today Wal-Mart revealed earnings well above what they were expecting,” Muir said on ABC’s November 13 “World News with Charles Gibson.”


     Muir even offered a warning, “[A]nalysts say this is a sign – this ‘discount dynamic’ – of things to come.”

     “The Lex Column” in the November 14 Financial Times, took a more positive look at Wal-Mart’s rebound:


     “If US consumers tighten their purse strings, Wal-Mart looks well positioned to benefit at the expense of its higher cost rivals.”


     While Muir echoed the sentiment that shoppers could save there, he suggested Wal-Mart’s strength was a sign of overall economic weakness, not competitive advantages such as cost control measures that the company touted in its November 13 shareholders’ conference call.


     “The most affected – mid-priced restaurant chains like Chili's (franchised by Brinker International (NYSE:EAT)) and Applebee’s (NASDAQ:APPB),” Muir said. “And at the mall, middle-of-the-road retailers will be hit hardest, as well. J.C. Penney’s (NYSE:JCP) and Gap (NYSE:GPS) have already shown declines. Experts say discount stores like Wal-Mart will fare better because families will be looking for a deal.”


     Despite Muir’s downbeat forecast for these companies, the same was predicted by the media in September for Wal-Mart. And now it turns out those reports were wrong.


     “But chains like Wal-Mart Stores and Macy’s (NYSE:M), which led the pack, have slashed prices and dangled large discounts to lure customers, which could hurt profits and mask troubles that might spill out during the crucial holiday season,” Michael Barbaro wrote in The New York Times on September 7.


     However, Aaron Katsman, lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC, offered the opposite perspective of Muir and ABC “World News.” Katsman wrote on the BloggingStocks blog on November 13 that the Wal-Mart news is a sign our economy isn’t in trouble.


     “This is just another sign that the US economy is strong enough to withstand the subprime mess, rising commodity prices, and the general negativity portrayed by the mainstream media,” Katsman wrote. “Haven't we been warned that consumer spending is going to tank, because of the effect of the subprime meltdown, and rising fuel prices will keep shoppers at home. Well Wal-Mart, which derives so much revenue from the very shoppers that are supposed to be staying at home due to rising fuel prices, said that they expect consumer spending to be higher than expected.”