Should We Care About Weak Retail Sales? - Real Time Insight
April 12 2013 - 6:57AM
Zacks
Earlier
this morning the Commerce Department reported that retail sales
contracted in March for the second time in three months.
Could this be a(nother) sign the American economy could be
faltering?
Retail sales fell 0.4
percent during the month, below analysts' expectations for no
change, cored retail sales fell 0.4% as well versus expectations
for -0.1%. Last month retail sales only showed a 0.5% rise,
which was less than half of the 1.1% analysts were expecting. The
government “revised” the February reading to 1 percent for
February, making the miss a little less
pronounced.
I think it’s fair to
say that retail sales readings have been unstable so far this
year. This makes it difficult to know whether the weakness in
March was due to a tax hike that went into effect at the start of
the year or maybe to temporary weather related
factors.
Many retail stocks
like Gap Inc (GAP), Macy’s (M), Target (TGT) and even the retail
ETF (RTH) are booming this quarter and brushing off weaker than
expected sales, economic data, tax hikes and the
sequester.
But when you couple
this mediocre to poor retail data with the recent rash of poor data
last week in employment, PMI and this morning’s fourth month in a
row miss in Consumer Sentiment (72.3 versus expectations for 79.1),
one has to wonder if the puzzle pieces are coming together for a
sell in May and go away type scenario.
My
Thesis
Historically speaking,
we have seen the data degradation and stock selloff for the last
three years straight. Let’s not forget that markets
have come a long way since the bottom and are breaking through new
highs. Without the economic data to support the rally, I
think logic will eventually come into play here and send stocks
into correction mode.
I remember feeling
this euphoria every year (for the last three) around this time and
at the same time feeling nervous about it.
We also heard in the
recent Fed minutes that the punch bowl could be pulled sooner than
later. In my opinion, the markets peak in April as do
economic readings on average. I think “Sell in May” might be
a good idea.
What do you
think will happen come May (summer)?
1.
Economic data worsens; stocks drop sharply
2.
Economic data worsen; stocks shrug it off and go
higher
3.
Economic data remains flat; stocks correct because they need a
break
4.
Economic data improves; stocks keep on rallying
5.
Other
Let us know how you
think this summer will pan out in the
marketplace!
GAP INC (GPS): Free Stock Analysis Report
MACYS INC (M): Free Stock Analysis Report
MKT VEC-RETAIL (RTH): ETF Research Reports
TARGET CORP (TGT): Free Stock Analysis Report
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