Friday, May 12, 2017

Markets are weak following retail earnings

Dow dropped 38, decliners over advancers almost 3-2 & NAZ lost 6.  The MLP index inched higher in the 308s & the REIT index was off a fraction to about 340.  Junk bond funds edged higher & Treasuries were purchased.  Oil was off chump change in the 47s & gold added 5 to1229.

AMJ (Alerian MLP Index tracking fund)


Crude Oil47.76



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Despite this week's carnage in retail-sector stocks after disappointing same-store sales, data from the gov show shoppers are still spending, just not in physical retail stores.  Last month, overall retail sales rose 0.4% as spending in non-store retailers jumped 1.4% from the month prior & 11.9% from the same time in 2016 as e-commerce players continue to dominate in the online shopping space.  Meanwhile, spending at department stores dropped 3.7% from Apr of last year as general merchandise-store spending declined nearly 1%.  An improving housing market led to a jump in spending on home-improvement goods like gardening supplies & building materials.  Spending in that category leaped 9.3% from a year ago alongside a 3.8% rise in furniture & home furnishing spend.  What’s more, rising wages, which have helped consumers feel more confident about their economic situations, also led to an uptick in spending at food service & drinking establishments, while fuel prices helped drive a more than 12% increase in spending on gas.  Excluding the volatile auto component, which showed the pickup in gas sales & a 4.4% year-over-year rise in car parts & dealers, retail sales rose 0.3% compared to an expected 0.5% pick up.

Consumer Spending Rises in April as Shoppers Head Online

A 4-month high in consumer confidence indicates Americans remain optimistic about their incomes, helping to support steady growth in spending this year, Univ of Mich survey data showed.  The index rose to 97.7 (forecast was 97) from 97 in Apr. An expectations measure rose to 88.1 in May from 87 & a current conditions gauge was unchanged at 112.7.  Americans are increasingly confident in their financial prospects, with 44% expecting an improved situation in the year ahead, the highest share since 2004.  While the partisan divide remains wide, it's narrowing somewhat, as 34% of Dems had a favorable economic outlook for the year ahead, up from 21% just 3 months ago, against 83% of Reps.  Recent job growth is supporting optimism about the labor market, though consumers may need to see more significant wage gains to sustain confidence levels.  The gap in expectations index between Dems & Reps narrowed to 55 points, as Dems were less concerned about an immediate recession, personal financial setbacks.  Consumers saw inflation rate in the next year at 2.6%, compared with 2.5% in the prior month. Inflation rate over next 5-10 years was seen at 2.3% after 2.4%.  Buying plans for durables rose to a decade peak, while vehicle buying conditions fell to a 3-year low.  Consumers had the most favorable views on home selling in more than a decade

Four-Month High in U.S. Consumer Sentiment to Sustain Spending

A rebound in US consumer prices in Apr signals inflation is stabilizing, supporting the case for Fed policy makers to raise interest rates, Labor Dept figures showed.  Consumer-price index increased 0.2% (matching forecast) following 0.3% decline the prior month.  From a year earlier, prices were up 2.2% (forecast was 2.3%) after a 2.4% gain.  Excluding food & energy, core prices rose 0.1% from the prior month after falling 0.1% & were up 1.9% from a year earlier (the least since Oct 2015).  Businesses are regaining some pricing power as household spending grows & improving global demand helps to stabilize commodity costs, adding to signs that inflation is on track to meet or possibly exceed the Fed's goal in coming months.  The central bank's preferred gauge of inflation, a separate figure based on what consumers purchase, exceeded its 2% goal in Feb, though some Fed officials focus on the measure excluding food & energy, which remains below their target.  The increase was driven by shelter, energy, tobacco & food.  Energy prices rose 1.1% from previous month, with rises in gasoline, natural gas & electricity; food costs advanced 0.2%, the 4th straight gain.  Hourly earnings adjusted for inflation rose 0.4% from Apr 2016, after a 0.3% gain, a separate report from the Labor Dept showed.

Markets are back to meandering.  The Dow is pretty much where it was at the start of Mar.  There has been plenty of news & much of it was favorable.  However markets remain heavily overbought & the goings on in DC (starting with the troubles trying to overhaul ObamaCare) have dampened enthusiasm.  Consumer confidence is high.  Earnings have reasonably good, but retailers (i.e. at stores) are soggy.  More news developments in DC will probably drive the stock market next week.

Dow Jones Industrials


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