EmailThe stock market stayed on its winning track Thursday, registering its fourth straight gain and logging another record closing high. Entering today's session, the S&P 500 is up 2.6% for the week.
It would take quite a shock for the S&P 500 to end the week lower than where it began the week, but thus far there hasn't been anything altogether shocking.
- The IMF lowered its global GDP growth forecast for 2013 to 3.4% from 3.5% and cut its outlook for US GDP growth to 1.7% from 2.0%. Not shocking.
- It will reportedly take more money to save Cyprus. Not shocking.
- JPMorgan Chase (JPM) and Wells Fargo (WFC) both beat their respective Capital IQ consensus earnings estimates. Not shocking.
- Retail sales growth in March was disappointing relative to February. Not shocking.
- Inflation remains in check at the producer level. Not shocking.
Just because things aren't shocking, though, doesn't mean they can't shake the market a bit after a nearly 3.0% rally in four days. That is basically where the market finds itself ahead of the open.
The S&P futures are trading 0.4% below fair value, as market participants have cooled their buying jets for the time being, having been grounded by the lack of any decidedly positive news.
Granted JPMorgan Chase and Wells Fargo beat earnings estimates by $0.19 and $0.04, respectively, but questions surrounding the quality of earnings, net interest margin compression, and reduced mortgage banking activity have taken some shine off the headline number. JPM and WFC are both trading modestly lower in premarket action.
Retail sales were a disappointment with total sales and sales, excluding autos, both declining 0.4% from February. The Briefing.com consensus forecast called for sales and sales, excluding autos, to be unchanged.
The decline was a bit surprising when taking into account that the nonfarm payrolls report showed aggregate earnings were up 0.4% in March. The initial takeaway is that the decline in sales is a result of the lagged effect of dealing with higher taxes.
The fact that sales went down while earnings went up in March suggests consumers were attempting to ramp up savings to deal with the building pressure on disposable income. The April retail sales report will provide some added, and needed, insight to see if that disposition is maintained.
Core retail sales, which exclude auto, gas station, and building material sales, fell just 0.2%.
Looking at producer prices in March, they dropped 0.6% (Briefing.com consensus -0.1%), led by a 3.4% decline in energy prices. Core PPI, which excludes food and energy, was up 0.2% (Briefing.com consensus +0.1%) for the third straight month with a 0.7% increase in prices for civilian aircraft leading that increase.
Producer prices are up just 1.1% over the last 12 months while core prices are up only 1.7%. In other words, this report won't trigger any inflation alarm for the Fed.
The futures market dropped to its lows of the morning in the wake of the economic reports. The retail sales report in particular was a drag since it fit the mold of recent reports pointing to a slowdown in activity that conflicts with the incessant rise in equity prices.
Accordingly, there will be some profit taking at the open. Just don't find it shocking if the market makes a subsequent attempt to rebound because participants are cognizant that weak data is going to keep the Fed's foot on the easing pedal.
--Patrick J. O'Hare, Briefing.com
