Market to Remain Tentative - Analyst Blog
January 15 2013 - 5:07AM
Zacks
A strong retail sales reading, weak economic growth in Germany,
and reassuring words out of Ben Bernanke Monday evening provide the
backdrop for today’s trading action. But the market’s mood is
expected to be tentative ahead of big bank earnings reports the
rest of this week and rising rhetoric about the debt ceiling
issue.
The December Retail Sales data this morning came in better than
expected, which confirms what consumer confidence data had already
been indicating: that the ‘Fiscal Cliff’ debate that month didn’t
have any negative effect on household spending during the holidays.
Both the ‘headline’ and the ex-autos growth pace came in better
than expected, while the prior month’s ex-autos growth number was
revised a shade lower.
Retail Sales serve as a proxy for consumer spending, which is the
mainstay of the U.S. economy. While consumer spending has held up
decently in recent quarters, the concern is that the end of the
payroll tax relief as a result of the partial ‘Fiscal Cliff’
resolution will bring down spending levels this year.
The fourth quarter GDP report coming out later this month is
expected to show the U.S. economy expanding at less than half of
the third quarter’s +3.1% pace. Today’s Retail Sales report should
provide some comfort on that front. Elsewhere on the economic
front, the New York Fed's Empire State index for January remained
in the negative territory, indicating that the factory sector still
remains problematic.
While U.S. economic growth has been lackluster, the situation
across the pond has been outright ugly. Today’s report shows that
even Germany, the Euro-zone’s strongest economy, endured negative
economic growth in the final quarter of 2012. The German GDP
contraction in the fourth quarter was expected, but the extent of
the contraction was not.
The German economy contracted at roughly double the pace of what
consensus was expecting. Many in the market do not expect the
German economy to remain in the negative territory for long, with
consensus estimates for the first quarter of 2013 showing positive
GDP growth.
But the worrying part about Germany is that business confidence
remains low, which is weighing on business investments. In fact, it
was weak business spending that produced the negative GDP read in
the fourth quarter, offsetting positive trade and spending by
consumers and the government. The concern is that Germany may not
be able to stay immune from the weak economic forces swirling all
around them.
In corporate news, we have a solid earnings beat from homebuilder
Lennar (LEN), while Forest Labs
(FRX) came short of expectations. The market will likely be not
much enthusiastic about the guidance that came out
Lululemon Athletica (LULU), the yoga pants maker,
after the close on Monday.
FOREST LABS A (FRX): Free Stock Analysis Report
LENNAR CORP -A (LEN): Free Stock Analysis Report
LULULEMON ATHLT (LULU): Free Stock Analysis Report
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