EmailThe market pretty much stuck to the script we alluded to yesterday, right down to the late burst of buying interest that enabled the Dow Jones Industrial Average to eke out a slight gain. The latter frankly seemed like a bit of a funny-money trade. Whatever it was, it enabled the Dow to record its eighth straight winning session and another record closing high.
The S&P 500 saw its wining streak snapped at seven, yet it never really buckled to selling efforts and slipped just 0.2% for the day on the back of a lackluster showing from the financial, technology, and industrial sectors.
Yesterday's showing didn't do much to inspire foreign markets overnight, which have run into a profit-taking wall. The Hang Seng (-1.5%) and the Shanghai Composite (-1.0%) led Asian markets lower while Italy (-1.9%) and Spain (-1.0%) are Europe's leading laggards.
The weakness in Europe stems in part from a disappointing 3-year bond auction in Italy that saw the highest borrowing costs for that maturity since December, as well as a report that industrial production in the eurozone declined 0.4% in January versus an expectation for a 0.1% decline.
Foreign market weakness and the specter of the February Retail Sales report curbed buying interest in the S&P futures, which were down three points ahead of the retail sales data.
Those losses were erased, however, after the Retail Sales report, which was stronger than expected. Some of the notable headlines are as follows:
- Retail sales rose 1.1% (Briefing.com consensus +0.5%)
- Excluding autos, retail sales increased 1.0% (Briefing.com consensus +0.5%)
- Gasoline station sales surged 5.0% in February, which helped boost the ex-auto number
- Core retail sales, which exclude autos, gaoline station, and building material sales, increased 0.4%
- Furniture and home furnishing stores saw the biggest decline in February (-1.6%). Sales at food services and drinking places dropped 0.7% while sales at electronics and appliance stores dipped 0.2%.
- The core retail sales increase was aided by clothing and clothing accessories stores (+0.2%), general merchandise stores (+0.5%), miscellaneous store retailers (+1.8%), and nonstore retailers (+1.6%)
- There were upward revisions to January retail sales (from 0.1% to 0.2%) and January retail sales, excluding autos (from 0.2% to 0.4%)
The February Retail Sales report provided an encouraging indication that consumer spending is holding up in the face of the higher payroll tax and higher gasoline prices. That is clearly a source of relief for the equity market, which has been riding high on that assumption.
Separately, the report goes to show that the earnings growth noted in the February employment report was an important factor behind the pickup in spending. Accordingly, if employment and aggregate earnings can continue at February's pace, consumption will likely remain on an encouraging path that prompts us, and others, to boost GDP growth forecasts.
The Treasury market has surrendered early gains in the wake of the Retail Sales report, which is another marker reflecting an encouraging pickup in economic activity. That understanding will continue to take some air out of the safety trade that has underpinned the Treasury market for several years now.
The S&P futures are trading slightly above fair value, setting the stage for a slightly higher open for stocks.
