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Good April Retail Sales Results Shave Early Losses. But Will Markets Rise?

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May 13, 2016

(Friday Market Open) This morning’s upbeat government report on April retail sales, in the wake of a string of murky Q1 sales and profit reports from some of the nation’s largest retailers, helped shave the losses among the three major benchmarks ahead of the open. Is today’s report, which helps launch the start of Q2 data, the first sign that consumers really haven’t taken their toys and gone home?

Monthly retail sales results, which include a whole basket of consumer spending, jumped 1.3% last month, according to the Commerce Department. That’s the best showing since March 2015, and comes on top of an upward revision of 0.3% to March’s sales rather than the 0.4% decline reported, the government said.  

At the open, the markets were still trending lower, but isn’t that what we’ve seen all week? Traders have been whipsawed as the markets jumped, then dove, then soared…well you get it. The 200-point swings were fast and furious, and many analysts consistently pointed to a missing link. But what was it? Conviction? Consistently good data? Global ambiguity? Wall Street was looking to today’s retail numbers for guidance. But to Where?

And what happened to that as-crude-goes-so-too-do-the-markets mantra of late? Crude oil prices settled Thursday at a fresh six-month high of $46.70 a barrel, up 1%. That was fueled by the International Energy Agency’s report that said global oil supplies are on track for a “dramatic reduction” in the second half of the year. Some analysts, however, pointed out that crude supply and demand has been choppy because of a number of unforeseen outside forces, such as wildfires in Canada, and production changes in Venezuela, Nigeria and Iraq. Today prices swerved south after the Russian energy professor told reporters that he doesn’t see the oil market finding a balance until the first half of next year, according to Reuters. What could happen next to impact oil prices?     

If the markets were in a wait-and-see mode for today’s government report on retail sales, did they get it today? Some analysts suggested that the volatility that marked trading yesterday appeared to come in tandem with poor results out of a handful of retailers. Is no one shopping anymore? “It’s clearly a tough time to be a retailer right now,” says Ken Perkins, president of Retail Metrics, a retail-research firm. Macy’s (M) results late Tuesday started a Wednesday downturn that Kohl’s (KSS) added fire to with an 87% drop in profit. And all that was exacerbated again after the session ended when Nordstrom (JWN) turned in quarterly results that appeared to be woefully low of Wall Street’s expectations. Retail shares were lower across the board with JWN’s diving in double digits.

If, as April’s number might suggest, consumers are shifting their spending habits, the question is how. Some analysts who consistently talk about the death of the malls and shopping centers, insist consumers are choosing to buy their clothes, shoes and groceries online. But others, pointing to how JWN’s department store sales results dropped while its Nordstrom Rack sales leapt, submit that it’s all about the better deal. Is discount the real king?

When all was said and done Thursday, the three major benchmarks ended with barely a blip. The S&P 500 (SPX) and the Nasdaq (COMP) couldn’t climb out of negative territory but were essentially flat, while the Dow Jones Industrials (DJIA) tipped barely into the green. Among the most notable decliners were shares of Apple (AAPL). Shares slumped as much as 3.3% in midday trading to $89.47, a trough it hasn’t seen since June 2014. What was yesterday’s problem? New worries on iPhone sales, according to some analysts. 
If today pans out like the rest of the week has, we can expect a whole lot of nothing in stock movement. For the first four days, DJIA is down 0.1%, SPX up just 0.3% and Nasdaq looking like a freshly paved, flat new road.

S&P 500

FIGURE 1: SPX LOSES ITS OOMPH.

The S&P 500 (SPX), plotted through Thursday's close on the TD Ameritrade thinkorswim platform, couldn't stay in positive territory amid high volatility. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

How Confident Are Consumers? If the sordid earnings results from some of the largest retailers this week and the volatility in the markets are any indication, the answer might likely be not very. But economists have a more upbeat forecast of this morning’s measure of consumer sentiment by the University of Michigan. They expect to see a slight uptick to 89.5 for May’s readings, up from what is considered a healthy 89 in April. How robust are we?

The Fight for No. 1. Alphabet (GOOG) today, Apple (AAPL) tomorrow? In less than a month, shares of AAPL have retreated deeper than 19%. Shares of GOOG have been bumpy too but have only lost a little more than 5%. Why could that matter? Because for a short time yesterday, and the second time in three months, GOOG’s combined market capitalization on its A- and C-class shares at $498.2 billion, surpassing APPL’s $492.9 billion, according to FactSet.

Take That Amazon! In a bid to keep up with Amazon (AMZN), which many analysts point to as the bane of most big-time national retailers, Wal-Mart (WMT) said yesterday that it is testing a two-day package delivery program. Aimed at taking a bite out of AMZN’s successful $99-a-year Prime membership, WMT’s ShippingPass subscription will cost $49 a year, a dollar less than its three-day service. ShippingPass will be offered as a test on more than 1 million eligible items purchased on Walmart.com, according to Investor’s Business Daily.

Good Trading,
JJ
@TDAJJKinahan

Economic Report Caledar

FIGURE 2: THIS WEEK'S ECONOMIC REPORT CALENDAR.

Source: Briefing.com

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JJ Kinahan

JJ began his career in 1985 as a Chicago Board Options Exchange...

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