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Questions Plague Street. First Up: Where’s the U.S. Consumer?

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May 13, 2015

U.S. stocks were trying to claw back from a two-day losing streak, a down move that sent the Dow Jones Industrial Average to test its 50-day moving average and the broader S&P 500 (SPX) below the closely watched 2100 line (figure 1). As a new trading day dawns, participants are taking cues from Europe’s equity bounce and a U.S. retail sales report flop. The health of the U.S. and global consumer has been a key fixation of Wall Street of late.

Kinahan-think-or-swim-charting

FIGURE 1: GOING THE WAY OF BONDS. Major stock averages, including the S&P 500 (SPX), fell with the bond market and recovered when bonds did. All markets remain on interest-rate watch. Data source: Standard & Poor’s. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Moving in Lockstep. The stock and bond markets remain tethered and that correlation may continue for a while as concern for world-wide fixed-income stability looks here to stay for some time, or at the very least through the next Federal Reserve meeting and press conference slated for June 16-17. San Francisco Fed head John Williams said this week that the central bank is likely to raise short-term interest rates sooner vs later, which to Wall Street translates to a move in 2015. Said Williams: "The decision to raise rates is actually three decisions: Not just when, but how quickly and how high. I see a safer course in a gradual increase, and that calls for starting a bit earlier."

Missing That Gas Pump Incentive? Where’s the job market follow-through? That’s been the key question after poor weather and global economic uncertainty held back consumer spending to start the year. What about April? Government data this morning revealed consumers spent more at restaurants and online, but they reduced purchases of cars, home furnishings, electronics, and fuel. Economists polled by MarketWatch had predicted a seasonally adjusted 0.1% increase in retail sales last month. Sales minus autos rose 0.1%, short of the 0.4% forecast. Sales minus autos and gasoline edged up a tepid 0.2%. In March, sales were revised to show a stronger 1.1% gain instead of 0.9%. Yet sales in the past 12 months have slowed to a 0.9% rate, the smallest year-over-year gain since October 2009.

Weather, Port Disruption Cloud Retail Earnings. A host of retailers report earnings results this week which could give us great insight at the store level all along the economic scale. Macy’s (M) is an early decliner after a bigger dividend and share buyback program failed to offset a poor Q1. Macy’s said earnings declined to $0.56 a share from $0.60 a share in the same period a year ago. Revenue fell 0.7% to $6.23 billion. Both top and bottom lines missed Street expectations. Management cited delayed shipments from the West Coast port slowdown, severe winter weather, and less spending by international tourists. If presumably transitory factors were at work, does that mean an easier time in coming quarters?  J.C. Penney Co. (JPC) is due to report its quarterly results after the closing bell. Kohl’s (KSS) is on tap tomorrow morning. The Street wants to see if a new strategic initiative for this discounter operating in a highly competitive space has paid off.

Good trading,
JJ
@TDAJJKinahan

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