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U.S. Retail Miss Piles On To Global Growth Haircut

January 14, 2015

A big miss for this morning’s retail sales report dents the bullish case for the U.S. economy as the standout performer in an otherwise slowing globe. The reported 0.9% drop in December retail sales (more report details below) was the widest miss from Street expectations in some four years, according to news reports. Economists aren’t exactly tossing out all their estimates for U.S. growth this year, but in the short term this report stings. Volatility has dominated January trading, including Tuesday’s 400-point peak-to-trough move for the Dow Jones Industrial Average (DJIA) and the vulnerability of a break below 2K for the S&P 500 (SPX).

FIGURE 1: S&P 500 charted on TD Ameritrade’s thinkorswim® risks a drop back below the closely watched 2000 line. Data source: Standard & Poor's. For illustrative purposes only. Past performance does not guarantee future results.

Check Those Receipts. U.S. retail sales fell sharply in December largely because of cheaper gasoline prices hit the receipts of gas stations and the big warehouses that also sell gas. Yes, we do talk about cheaper gas encouraging spending elsewhere. This report shows that didn’t happen to the degree many thought it would (some commentary straight from the stores argue otherwise). Overall, sales at retailers dropped 0.9% last month to mark the biggest decline in nearly a year. Auto sales retreated 0.7% in the final month of the year. Yet even if autos and gasoline are excluded, retail sales fell 0.3%, not the gain in a 0.3% to 0.5% range that the Street expected. Sales were also revised lower for November and October. The gain in November was revised down to 0.4% from 0.7%, while the increase in October was lowered to 0.3% from 0.5%.

World Bank Pessimism Hits Copper, More. Crude prices steadied at multi-year lows, with U.S.-traded futures just below $46 a barrel. Attention turned to the broader commodities space, copper in particular. The metal’s wide use in industry and construction leaves it as a default economic indicator. Copper futures have shed some 6% over the past few days and are now at levels last seen in mid-2009. Selling pressure comes with concern for Chinese economic growth, especially after a warning from The World Bank. The U.S.-based lending institution cut its outlook for 2015 global growth to 3% in a release late Tuesday. That’s up from 2.6% in 2014 but below the World Bank’s earlier view for 3.4% for this year. The World Bank expects growth to average about 3.3% through 2017. Officials there said expected U.S. growth won’t be enough to completely offset sluggishness in Europe, China and elsewhere.

Here Come the Banks. J.P. Morgan Chase (JPM) is lower early Wednesday as it’s the first of major financial firms to report earnings. Q4 profit was $4.93 billion, or $1.19 a share, versus $5.28 billion, or $1.30 a share, a year earlier. Analysts polled by Thomson Reuters had expected a per-share profit of $1.31. Revenue slipped 2.8% to $22.51 billion, led by weaker market revenue. Notably, this report was tainted with legal fees that presumably won’t impact coming quarters. Wells Fargo (WFC) offered a rosier report. It said Q4 net income rose to $5.71 billion compared with year-earlier income of $5.61 billion. Per-share earnings hit $1.02 from $1 a year earlier. Revenue increased 3.8% to $21.44 billion. Analysts polled by Thomson Reuters expected per-share earnings of $1.02 on revenue of $21.23 billion. But with the market’s negative tone, there’s been scant boost to WFC in the immediate wake of this pretty good earnings report.

Good trading,

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