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Strategic Petroleum Reaction

Happy Thanksgiving! Many thanks to all of our Wall Street Breakfast readership as we go into the holiday season. WSB won't be published with markets closed tomorrow, but tune back in Friday.

WTI crude rose more than 4% over the last 24 hours to retake $79/bbl after the Biden administration announced plans to release 50M barrels of oil from the U.S. Strategic Reserve, along with China, Japan, India, South Korea and the U.K. While the move was meant to lower prices, the volumes announced were much less than the market was expecting and would need to be sustained over a longer period of time. Many of the barrels will also need to be returned by the refiners who buy them, leaving traders forecasting tighter balances.

Quote: "I told you before that we're going to take action on these problems. That's exactly what we're doing," President Biden said from the White House. "It will take time, but, before long, you should see the price of gas drop where you fill up your tank, and in the longer term, we will reduce our reliance on oil as we shift to clean energy."

Meanwhile, a large portion of the barrels is set to be exported to China and India. That's because the supplies will comprise of sour crude, a type of oil that many American refiners are avoiding due to its high sulfur content, which makes it more expensive to process. Foreign buyers are also attracted to the oil since it's cheaper than the global Brent benchmark.

Go deeper: Following the decision, some are even referring to the U.S. emergency stockpile as the Strategic Political Reserve, with the president under pressure to tamp down inflation. OPEC+ is also scheduled to meet in a few weeks and could unveil a counterpunch if the group feels threatened. The cartel would need to give up two months of output increases to offset the 50M barrel release, after snubbing several requests from Washington to pump more oil. The U.S. national average price for a gallon of gas was $3.40 on Tuesday, according to AAA, more than a $1 increase from a year ago.

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Thanksgiving spending

Holiday shopping trends are on track to make a comeback this year, with 158.3M people (nearly 2M more people than last year) expected to shop from Thanksgiving Day through Cyber Monday. That's according to the latest report from the National Retail Federation, which estimates consumers will shell out an average $997.73 on holiday sales during November and December. At those levels, it would mean a growth rate of between 8.5% and 10.5% over 2020 to a total of $843.4B-$859B, setting records for both the expansion and total amount spent.

By the numbers: 75% of American adults will conduct their e-commerce through big retailers like Amazon (NASDAQ:AMZN) or Walmart (NYSE:WMT), which will be similar to or increase relative to the 2020 holiday season. However, some still prefer brick-and-mortar for the holidays. Among those shopping on Thanksgiving Day, 65% are likely to do so in stores, up from 50% last year, when COVID-19 concerns kept many people at home. On Black Friday, 64% are likely to shop in stores, up from 51% last year.

"Pandemic-related supply chain disruptions have caused shortages of merchandise and most of this year's inflationary pressure," NRF Chief Economist Jack Kleinhenz declared. "With the prospect of consumers seeking to shop early, inventories may be pulled down sooner and shortages may develop in the later weeks of the shopping season. However, if retailers can keep merchandise on the shelves and merchandise arrives before Christmas, it could be a stellar holiday sales season."

Shopping carts: Apparel continued to top the NRF list, expected to be scooped up by 53% of shoppers, followed by gift cards at 46%, toys at 39%, books/music/movies/video games at 35% and food/candy at 31% as the top five categories.

'Everything's $1.25'

After 35 years of selling merchandise for a buck, Dollar Tree (DLTR) is raising its standard price point to $1.25. The change will take place by the end of April and follows hot inflation numbers over the last six months. Despite acknowledging those market conditions, Dollar Tree said its move was "not a reaction to short-term or transitory market conditions," but would rather help mitigate historically high costs like freight, distribution and wage increases.

Bigger picture: Following a test on 200 stores conducted in September, a survey showed that 77% of shoppers were almost immediately aware of the price increase, but 91% suggested they would still continue shopping at Dollar Tree with the same frequency. Dollar Tree also related that its new strategy will allow stores to carry a wider array of merchandise that couldn't be sold for $1. The chain is separately instituting $3 and $5 pricing levels, though the move won't come along with a name change.

"We think the company's decision to operate at a single $1.25 price point across all stores and most SKU's is a subtle, yet critical distinction, that significantly augments the odds of success in 2022 (and beyond), in our view," said Gordon Haskett analyst Chuck Grom. "Moreover, the higher price point will allow for the Tree to drive an improved assortment (via new items + lapsed products) over time that should translate into improved traffic trends, which have been under duress for a couple of years now."

Market movement: Investors cheered the raised prices, sending DLTR shares up 9.2% on Tuesday, as the move will allow the company to defend its margins against inflation pressures. Earnings for the third quarter also showed that net sales grew 3.9% Y/Y in the three months that ended in October.

Sounding the alarm

The retail news flow did not stop coming yesterday as a flurry of earnings dominated the headlines. Shares of Gap (GPS) slumped 20% in AH trading after slashing its outlook as COVID-related factory closures led to significant product delays, while Nordstrom (JWN) collapsed 27% as labor costs cut into profits and sales. Abercrombie & Fitch (ANF) was also among the biggest losers in the sector, with mall retailers feeling investors' wrath amid worries about margins and slowing growth.

Snapshot: Another interesting story that made waves was a remark from Best Buy (BBY) CEO Corie Barry on a post-earnings interview. She told CNBC that the rise of organized crime is a "horrible change" for the "trajectory of the business" and the electronics retailer is "working hard to try to stem" loosely organized bands of thieves who have targeted the firm's locations. Barry also noted that Best Buy was among many retailers who have faced a spike in these attacks and has put measures in place to prevent the thefts, such as locking up certain products and working with local law enforcement.

Shares of BBY also tumbled 12% following the gross margin decline, but the stock is up 17% in the six weeks before earnings, so it now stands where it traded in the middle part of October.

Outlook: Kroger previously highlighted organized crime as a reason for its reduced margins when it reported quarterly results back in September. Over in San Francisco, Louis Vuitton (OTCPK:LVMHF), Burberry (OTCPK:BBRYF) and Hermes (OTCPK:HESAF) stores were ransacked last weekend, while a raid on a Nordstrom in nearby Walnut Creek was even more brazen. Just before closing time, some 80 people jumped out of a group of cars and assaulted two employees before escaping with hands full of merchandise.

Today's Markets

In Asia, Japan -0.1%. Hong Kong +0.1%. China +0.1%. India -0.6%.
In Europe, at midday, London flat. Paris -0.2%. Frankfurt -0.6%.
Futures at 6:20, Dow -0.3%. S&P -0.2%. Nasdaq -0.1%. Crude +1% at $79.11. Gold +0.3% at $1788.80. Bitcoin +1% at $56698.
Ten-year Treasury Yield -1 bps to 1.65%

Today's Economic Calendar

7:00 MBA Mortgage Applications
8:30 Durable Goods
8:30 GDP Q3
8:30 International Trade in Goods (Advance)
8:30 Initial Jobless Claims
8:30 Corporate profits
8:30 Retail Inventories (Advance)
8:30 Wholesale Inventories (Advance)
10:00 New Home Sales
10:00 Personal Income and Outlays
10:00 Consumer Sentiment
10:00 State Street Investor Confidence Index
10:30 EIA Petroleum Inventories
11:00 Survey of Business Uncertainty
12:00 PM EIA Natural Gas Inventory
1:00 PM Baker-Hughes Rig Count
2:00 PM FOMC Minutes

Companies reporting earnings today »

What else is happening...

Walgreens (NASDAQ:WBA), CVS (NYSE:CVS), Walmart (NYSE:WMT) held liable in opioid trial.

Palantir (NYSE:PLTR) CEO: California will benefit from people leaving.

Will a month-long strike weigh on Deere's (NYSE:DEearnings?

Texas wins contest for Samsung's (OTC:SSNLF) new $17B chip plant.

Apple (NASDAQ:AAPL) sues NSO Group, saying U.S. citizens were targeted.

China pressures Alibaba (NYSE:BABA), Baidu (NASDAQ:BIDU) to crack down on cloud fraud.

JPMorgan (NYSE:JPM) likely to last longer than China's Communist Party - Dimon.

Allbirds (NASDAQ:BIRD) descends for third session, shoe brand still up 26% from IPO.

Rocket Lab (NASDAQ:RKLB) plans to use helicopter to catch rocket booster.

Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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