Fact of the day
Urban exodus, shmexodus. Contrary to popular belief, most Brits didn’t run for the hills during the pandemic. While many claimed to be yearning for sprawling forests and wide open spaces, very few actually made the move. And, according to Rightmove, we’ve seen a 50% increase in rural home-movers heading back to cities in 2022, compared to 2021.
What’s been going on?
If you listened very closely inside the walls of No. 10 this week, you could hear the echo of DJ Khaled’s favourite two words.
Yes, there’s another PM on the scene. And this revolving door of change might have you wondering what Rishi will mean for your investments.
When it comes to a PM’s influence on your portfolio, in the short run it’s a lot less about who’s in power, and more about someone maintaining that power for more than a few days.
Markets hate the unknown. As an old Wall Street saying goes, even bad certainty is better than uncertainty.
It makes investors skittish, and the storm before the calm is what really gets us.
Rishi’s confirmation offered markets some reassurance that the UK could be on the verge of some stability. And in the hours after he took office, UK bonds had a skip in their step.
Short-dated ones (with a two-year yield) were particularly perky, indicating renewed confidence in the UK’s near future.
But gilts have a long way to go before they redeem their reputation as a relatively less volatile investment.
Government bond-buying programmes after the financial crisis had already distorted that market. Throw in some curveballs like a changing rate environment and the UK’s currently shaky credit reputation, and bonds have had a pretty unpredictable 2022.
Past performance is not a reliable indicator of future returns.
Source: FE, as at 24 October 2022. Basis: bid-bid in local currency terms with income reinvested.
So, what now?
Rishi’s preference for tackling inflation before tax cuts is exactly what markets want to see right now. And if his government manages to bring forward a new budget come 31 October, he might even manage to calm down some more nervous Nellies.
Don’t get drawn into short-term thinking. The UK stock market got a boost after Liz Truss (remember her?) was elected a month-and-a-bit ago too.
When you zoom out, the ebbs and flows of the market in response to headlines aren’t what matter. Rishi’s policies (like more investment and government support to attract tech) could of course impact the UK’s economy. For now, those details have yet to be revealed, let alone ironed out.
What he leaves behind as a legacy on markets is a long-term question. Or hopefully, at the very least one that takes more than 44 days to answer.
Some of them are moo-ving right up the page.
Tractor Supply Co, in particular, has seen its share price take off this week. The animal fodder, farm machinery and home improvement chain is one of only a few retailers reporting in-store sales growth.
In its latest earnings report, Tractor Supply’s comparable store sales were up 5.7% and net income grew 4.3% to $234.1m.
Those aren’t huge figures. But Tractor Supply is fighting against some strong headwinds, with inflation causing renovation projects to cool down and homeowners to delay big purchases.
US stimulus cheques have also now all dried up, yet the chain has managed to increase the average customer’s ticket by 7%.
Tractor Supply has a couple of factors in its favour. First, rather than take a page out of Walmart’s playbook (one of its biggest competitors), it has chosen to build more locations in rural areas.
Forget population-dense cities and suburbs targeted by most big-box stores. Tractor Supply serves the towns otherwise unserved, which makes sense, given you’re more likely to find cows, sheep and barns in Kentucky, not New York.
Tractor Supply has never strayed from this strategy. And as the Fact of the Day proved, tempting as it may be to pin its success on a covid-induced ‘urban exodus’, this story could be more than a pandemic one-hit-wonder.
For now, the excavator-seller has built itself something of a moat.
Got stung 🚑
Life in plastic isn't always fantastic.
And Tupperware Brands sure knows it.
The container-maker’s stock is down since deciding to withdraw earnings guidance it set out earlier in the year.
Initially, this strategic pivot seemed like a promising opportunity for the food-storage firm. The brand has historically only sold its products through a wide-reaching network of loyal sales advocates. But CEO Miguel Fernandez has been fixated on changing the firm’s legacy since joining in 2020.
It’s easy to see why. Lockdowns were an obvious hurdle for the firm’s door-to-door sales model. Tupperware’s 2019 Q1 profit of $36.9m quickly flipped to a $7.8m loss the following year.
But the brand’s salesforce went to social media, vehemently disapproving of Fernandez’s decision. How could they compete with lower prices and the free overnight shipping being offered on Amazon?
Customers weren’t too thrilled either. Tupperware’s still not selling individual lid replacements.
Tupperware’s having a tough time selling its cubes of polyethylene thermoplastic as is. Q2 net sales tumbled 18% to $340m and, with more of its salesforce leaving the company, it could be even more challenging to recoup pre-pandemic sales levels.
A business’s worthiness as an investment isn’t all about the product. Tupperware might be the best option for preserving a cross-section of avocado, but if it doesn’t have the right sales channels, then nobody’s going to buy it.
Going digital isn’t always the be-all-end-all it's cracked out to be. Companies need to tailor their marketing and sales tactics to the end-user, just as your portfolio needs to be set up to meet your financial objectives and needs, nobody else’s.
In the news
- We were in This is Money and Proactive Investors with our take on how Rishi will impact the UK market.
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