By Kate Gibson
With bank stress tests completed and first-quarter earnings
nearly over, stock investors on Monday turned to economic reports,
with the release of April's retail sales expected to draw the most
attention.
"The trade will examine economic conditions to see if the
economy continues to have forward momentum. The bull market needs
to be fed more positive economic news," said Nick Kalivas, analyst
at MF Global Research.
Consensus estimates for the monthly data slated to be released
Wednesday call for overall sales to draw a flat reading, while the
figure is expected to rise 0.2% excluding automobile sales.
"In tandem, the release will support the notion that since
collapsing in late 2008, the consumer has reestablished at last a
tepid pace of consumption," said T.J. Marta, strategist and founder
of Marta on the Markets, in emailed comments.
On Monday, financials and energy shares fronted the losses as
investors retreated from last week's solid advance.
At 2:30 p.m. Eastern, the Dow Jones Industrial Average (DJI) was
down 116.37 points, or 1.4%, to stand at 8,458.28. The S&P 500
Index (SPX) shed 14.22 points, or 1.5%, to 915.01, while the Nasdaq
Composite (RIXF) tilted into the green, up 3.97 points, or 0.2%, to
1,742.97.
Retail stocks also traded lower, with Home Depot Inc. (HD) and
Lowe's Cos. (LOW) among the larger decliners after their stocks
were downgraded. .
Raising the bar
The government's retail sales report holds the potential for a
positive surprise in light of raised earnings guidance by more than
a dozen U.S. retailers at the end of last week, said Marc Chandler,
global head of currency strategy at Brown Brothers Harriman &
Co., in a note Monday.
American shoppers were back in stores last month, with reports
suggesting clothing and discretionary spending led the buying, said
Chandler.
Retail Metrics said its index of same-store sales last month
rose 1.5%.
The U.S. retail sales report for March illustrated a 1.1%
overall decline and a 0.9% drop excluding auto sales, with the
figures partly mitigated by upward back revisions, leaving headline
gains of 0.3% for February and 1.9% in January.
Also of note, the Easter holiday, which last year fell in March,
was observed in April this year, a switch that could factor into
the year-over-year comparisons, while gasoline prices rose modestly
during the month, which might also help inflate the headline
number, the analyst said.
"Separately, tax refunds and the payroll tax cut may give more
Americans the wherewithal to act on pent-up demand. Unlike last
year's tax cut, that was given as a lump-sum payment and which did
not lead to a big jump in spending, this year's payroll tax cut
will be dripped in relative small sums and may be seen a permanent
tax cut and therefore may bolster spending more," Chandler
said.
In addition, at least half a dozen retailers are expected to
report quarterly financial results during the week, including Macys
Inc. (M) on Wednesday and Wal-Mart Stores Inc. (WMT) on
Thursday.
The SPDR S&P Retail exchange-traded fund (XRT) "shows signs
of becoming tired. Retail stocks are probably seeing profit taking
in front of reports. Retail earnings are expected to contract 30.1%
year over year in the first quarter and 27.9% year-over-year in the
second quarter before seeing a positive growth rate of 5.3% in the
final quarter of 2009," said MF Global's Kalivas.