The market came out of the gate with some vigor on Monday, but it could never find that extra gear as the Dow peaked at +163 but all major indices finished the session higher. The Russell 2000 actually closed lower. In fact, there were more decliners than advancers on the NY Stock Exchange and the NASDAQ. That said, investors are willing to chase winners:
- NYSE: new highs 123 to new lows 32
- NASDAQ: new highs 141 to new lows 31
FOMO Market
Stock market bias has shifted, it’s clear the bias has turned to the upside. However, the last two sessions make it clear that the rally lacks oomph, even as the fear of missing out (FOMO) has replaced the fear of losing everything.
The most important economic data is behind the market for a while as earnings are winding down and the next jobs report is weeks away.
Coming into this week, 455 S&P names had reported for the quarter; according to Thomson Reuters, Corp., both revenue and earnings crushed estimates and historical trends.
1Q 2018 | L-T average | 4-Q average |
75.8% | 60.0% | 69.0% |
1Q 2018 | L-T average | 4-Q average |
78.2 | 64.0% | 75.0% |
Economic Momentum
While it’s early, most experts are looking for strong Gross Domestic Product (GDP) numbers this quarter, including the Atlanta Fed, which is calling for a 4% growth.
Will Consumers Step Up?
Today, we get the latest on retail sales, which should prove to be interesting. Last month, the number beat consensus, but there are lingering questions about the state of U.S. consumers.
Consensus estimates see increases in spending at a slower pace in April than in March.
Retail Sales I April 2018 | Consensus | Previous |
Headline | +0.3% | +0.6% |
Less Autos | +0.2% | +0.5% |
Less Autos & Gasoline | +0.3% | +0.4% |
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So, can the rally pick up steam, and will the catalyst come from better-than-expected economic growth?
I think the consumer has the wherewithal, but I continue to see a more disciplined consumer that’s able to modulate spending and savings before getting too far over their skis.
Today’s Session
Equity futures pointing lower after Home Depot reported results that came in slightly below Wall Street consensus and Retail Sales only matched expectations.
I think the initial reaction to both news items is a knee-jerk reaction. Retail Sales for March were revised higher to +0.8% from +0.6% which means the initial read of +0.3% is actually better than expected. Moreover, there were pockets of strength including clothes and furniture although the decline in restaurants isn’t great news as grocery store sales increased.
Retail Sales | M/M | Y/Y |
Headline | +0.3% | +4.7% |
Retail Ex-Autos | +0.3% | +4.8% |
Retail Ex- Autos & Gas | +0.45 | +4.8% |
Motor | +0.1% | +4.3% |
Furniture | +0.8% | +6.1% |
Electric | -0.1% | +1.7% |
Building Materials | +0.4% | +4.4% |
Grocery | +0.5% | +3.3% |
Health & Personal Care | -0.4% | -0.5% |
Gas Stations | +0.8% | +11.7% |
Clothes | +1.4% | +4.1% |
Sporting Goods | -0.1% | -1.1% |
Department Stores | +0.2% | -1.6% |
Misc. | +0.9% | +4.1% |
Internet | +0.6% | +9.6% |
Restaurants | -0.3% | +3.8% |
Home Depot comp-store sales +4.2% overall and +3.9% in the United States which is slightly less than expected but for me the biggest issue was SGA cost surging resulting in a decline in operating margin to 13.6% from 14.0%. I think weather was the wildcard underscored by the decline in transactions while the company enjoyed increased pricing power.
- Transactions -1.35
- Average ticket +5.8%
- Sales per square feet +4.5%
Management reaffirmed its earnings guidance for the year based on the economy and housing trends.
Course of Action
This has been one of the best month of May for the market in years (the best for NASDAQ since 2005) so today’s session will be a great test of its resolve in addition to retail concerns there might be angst over the ten-year yield.
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