(Guarded) optimism reigns this morning after initial claims for unemployment came in below forecast and consumer confidence climbed.
The “guarded” nature of today’s optimism, however, results from yet another cut to U.S. third quarter GDP growth on the third revision to the statistics and a sneaking suspicion among economists that the good news on the economy is only temporary.
As of 1:30 New York time the Dow Industrial Average was up 0.6% and the Standard & Poor’s 500 Stock Index was up 0.8%. In Europe the German DAX Index closed up 1.1%, the French CAC 40 was up 1.4%, and the Spanish IBEX 35 was up 1%.
New claims for unemployment in the United States fell by 4,000 to 364,000 for the week ended on December 17, the Department of Labor announced. That’s the lowest level for initial claims since April 2008. Economists surveyed by Bloomberg had projected an increase in initial claims to 380,000 for the week.
The revised Michigan Consumer Sentiment Index climbed to 69.9 in December from an initial reading of 67.7. Economists had expected a revision to 68.0.
It’s only logical that a drop in new claims for unemployment would go together with improved consumer confidence—if fewer people are losing their jobs, consumers feel better about spending. Lending a helping hand are the cheapest gasoline prices since February. That puts more money in consumers’ wallets and takes some strain off of family budgets.
But we very seldom get good news these days without a caveat—and today is no exception. Read more
Can you trust the headlines about Black Friday retail sales?
Yesterday, November 28, stocks soared in part at least, since I think news/rumors from Europe had something to do with the rally, on reports that retail sales on Black Friday, the official start of the holiday shopping season, climbed by 6.6% from the same day in 2010. (The day after Thanksgiving is called Black Friday since it’s the date on which many U.S. retailers move into the black for the year.) Online sales climbed by 24.3% from 2010.
The figures have met with a lot of skepticism—which I find encouraging for stock prices. It means there are still a lot of investors out there who aren’t convinced that the U.S. economy isn’t going to lay an egg in the fourth quarter. If the data over the next couple of weeks converts some of them, their change of mind will push stocks higher through—perhaps as long as–the end of the year.
We’ll get our next read—and our next set of headlines on retail sales—next Monday when we get data on retail sales for the December 2,3,4 weekend. Analysts will study that data to see if the Black Friday weekend was so strong because it cannibalized sales from other weekends in the holiday shopping season.
A lot of the skepticism comes from the very obvious conflict between strong retail sales and a lousy economy. But recent data from the Federal Reserve makes it clear where the money for this round of consumer spending could be coming from. Read more
Economists had projected that October U.S. retail sales would be up by 0.4%, according to a survey by Briefing.com. Numbers released by the Commerce Department this morning showed actual sales up 0.5%.
I think that’s enough to keep the optimism flowing for the end of the year holiday shopping season. And to sustain belief that the U.S. economy is stronger than anyone expected back in August. As I read these numbers, they point to GDP growth above 2% for the fourth quarter.
The big drivers were sales of consumer electronics and cars. Sales at electronics retailers climbed 3.7% in October. That’s the fastest rate of growth since November 2009. Sales at auto dealers climbed by 0.4% after an increase of 4.2% in September. That added up to a 13.2 million annual sales rate in October, the highest since February and up slightly from the 13.04 million annual rate in September.
We also had good news on the inflation front this morning as well. The producer price index, a leading indicator of inflation at the consumer level, dropped by 0.3%. That was a bigger drop than the 0.1% that economists had projected according to a survey by Bloomberg and the first decline in four months.
Now the big question for the holiday retail season is how deep the discounts will be. Too deep and the stores will be full of shoppers but retailers won’t be making much money.
Looking for a mover in a market that seems to have gone to sleep? (Volume on the New York Stock Exchange as of 2:20 p.m. New York time is just 378 million shares. Average volume over the last 10 days has been 902 million.)
How about the October retail sales that get announced tomorrow, Tuesday, November 15, before the New York market opens?
The big pop in September retail sales—up 1.1% from August—was a major factor contributing to optimism about U.S. economic growth. Not only have the projected odds of a U.S. double-dip recession in the next 12 months dropped back to 25% in the November Wall Street Journal poll of 52 private sector economists from 33% in the September survey. But also there’s a growing suspicion that U.S. economic growth in the fourth quarter will hold above 2%. The Blue Chip Economic Indicators poll of economists, for example, most recently projected 2.3% growth.
That would be down from the 2.5% growth in the third quarter, but way above the 1.3% in the second quarter and certainly nothing like the double-dip recession so feared in August and September.
The likelihood is that tomorrow’s retail sales numbers won’t be as strong as September—which got a boost from back to school shopping—but should still show solid growth heading into the holiday shopping season Read more
So where’s the ‘Mo’?
Remember back on October 27 when stocks looked like they might rally through the end of the year? I asked then whether it was time to go with the momentum or move to the sidelines and wait for a pull back.
Today, just two weeks later, the question seems downright silly. Not only have we had that pullback but also it’s hard to find any momentum in this market at all. (Or at least any momentum to the upside.) I think there’s still a good chance for an end of the year bounce—if only because the world isn’t coming to an end, even in Italy, and the markets were pricing that in on Wednesday, November 9.
But momentum? You know where investors buy stocks that have moved up strongly because they think those shares will move up even more as other investors go chasing past gains? It’s just about impossible to find.
(I’d argue that in a bounce, on the other hand, it’s the stuff that has sold off most strongly that tacks on the gains.)
Almost impossible but not quite. There are a few pockets of momentum in even this current market, but they’re just not in the places that we usually look. I don’t see momentum in technology stocks, for example. In fact, recently the technology-heavy NASDAQ has lagged both the Dow Industrials and the Standard & Poor’s 500. (Yesterday afternoon, for example, as of 3:10 p.m. New York time the S&P 500 was up 0.61% and the NASDAQ Composite was down 0.07%.) Certainly not in financials. Commodities and raw materials stocks aren’t going anywhere as long as the dollar looks so much more attractive than the euro.
But how about names such as Wal-Mart (WMT), Eli Lilly (LLY) and CVS Caremark (CVS)?
In spite of all the scary news out of the EuroZone, these stocks have been moving up and look like they ready to break through resistance and party.
Check, let me rephrase that. Because of all the scary news out of the EuroZone, these stocks have been moving up. Safety with growth and/or a solid dividend yield is back in fashion in the market.
You may have your favorites among this group. At the moment mine is CVS Caremark. Read more