By Chris Matthews, MarketWatch
Investors eye retail sales figures and Walmart earnings as a
gauge of consumer health
The stock-market narrative over the last week centered on the
escalating trade battle between the U.S. and China, but it's the
U.S. consumer that will steer the path ahead for equities.
As corporate tax-cut stimulus fades and the market continues to
digest higher interest rates imposed last year, persistent job
growth and wage gains are key to sustaining the current market
rally, and pushing the S&P 500 and Nasdaq Composite Index above
all-time highs notched in April, investors and strategists
said.
"The consumer is really healthy and that's key to the U.S.
economy," Aaron Clark, portfolio manager at GW&K Investment
Management told MarketWatch. "There's strong job growth, wealth
creation with stocks and real estate, and broad-based wage
strength, making this one of the better environments for the
consumer in a long time."
Over the past three months, the U.S. economy created 169,000
jobs a month, on average. While that number has trended down since
January, it is still high enough to put downward pressure on the
unemployment rate, and theoretically keep wage growth trending
higher.
Clark argued that the recent trend of healthy, but not
inflationary, wage growth is one of the best reasons to be bullish
about the stock market, given that consumption accounts for more
than two-thirds of U.S. GDP.
He also pointed to recent earnings results, including Mastercard
Inc. (MA), which saw its U.S. gross dollar volume charges rise by
8% in the first quarter compared with the year-ago period,
suggesting a strong U.S. consumer ready to borrow and spend. Other
consumer-facing firms that saw better-than-expected domestic sales
growth in the first quarter include Starbucks Inc
(http://www.marketwatch.com/story/starbucks-boosts-sales-outlook-for-us-china-2019-04-25).
(SBUX) and McDonald's Corp. (MCD)
Mike Loewengart, vice president of investment strategy at
E-Trade agreed that rising wage growth is a key for the U.S.
equities, but he cautioned that the trend is well below levels one
would expect given the low unemployment rate. Meanwhile, he pointed
out that retail sales growth has been surprisingly weak since
December, despite the bounceback in March.
"There are a lot of positives right now for consumers, but we
don't have a clear picture," Loewengart told MarketWatch, given
subdued retail sales and that consumer confidence levels, while
still high, have come down from last year's levels
(http://www.marketwatch.com/story/consumer-sentiment-dips-in-april-but-americans-still-fairly-optimistic-economy-2019-04-12).
"Consumer confidence is not exactly on an upward trend, it just
seems to me that people are cautious," he added. "The numbers are
ok, but many consumers are apprehensive and that's coming through
in the consumer spending figures [in the latest GDP report], which
were not encouraging
(http://www.marketwatch.com/story/behind-that-great-gdp-number-the-real-economy-is-slumping-2019-04-26).
There's no clear picture on that front."
Meanwhile, an escalating trade fight
(http://www.marketwatch.com/story/trump-today-president-says-no-need-to-rush-china-talks-after-tariffs-take-effect-2019-05-10),
which has so far left the American shoppers largely unscathed,
could start to crimp spending as the effects of Friday's tariff
hike begins to make its way through the economy, and especially if
President Trump follows through
(http://www.marketwatch.com/story/cost-of-trump-trade-spat-with-china-to-be-clearer-if-fight-escalates-2019-05-08)
on threats to drastically widen the number of products that will
face a 25% import duty in the coming weeks.
Read:Here's how hard the escalating tariff fight will hit the
economy
(http://www.marketwatch.com/story/heres-the-hit-us-chinese-and-global-economies-could-face-as-trade-battle-heats-up-2019-05-09)
Atlanta Fed President Raphael Bostic said Friday
(http://www.marketwatch.com/story/feds-bostic-higher-tariffs-could-result-in-interest-rate-cuts-if-consumer-spending-suffers-2019-05-10)
the central bank might have to cut interest rates if consumer
spending suffers as a result of tariffs, potentially creating a
counterweight to the effects of the trade skirmish.
Stocks ended on a positive note
(http://www.marketwatch.com/story/us-stock-futures-ease-as-higher-tariffs-on-china-imports-kick-in-2019-05-10)
Friday, clawing back losses to finish in positive territory after
upbeat comments surrounding trade talks. But it wasn't enough to
prevent the S&P 500 and the Nasdaq Composite from posting their
biggest weekly declines of 2019, with the S&P off 2.2% and the
Nasdaq off 3%. The Dow recorded a 2.1% weekly fall, its biggest
since early March.
The week ahead will provide investors a series of reports that
could be clarifying. On Monday, the Federal Reserve will release
its quarterly survey of consumer expectations. On Wednesday the
all-important retail sales report for April will be released, which
could give investors a clue as to whether the slump that began in
December was a temporary blip or the beginning of a worrisome
trend.
On Thursday, weekly jobless claims figures will be released, and
on Friday the University of Michigan will release its consumer
sentiment index for May.
Other economic data on tap include the NFIB small-business
index, to be released Tuesday morning, industrial production and
capacity utilization figures on Wednesday, and housing starts and
building permits figures on Thursday.
First-quarter earnings season is largely over, but the week
ahead still features retailer results that will also help paint a
clearer picture of consumer health. Retail giant Walmart Inc. (WMT)
set to report first-quarter earnings before the start of trade on
Wednesday, and on Tuesday morning Ralph Lauren Corp. (RL) will
deliver its first-quarter results.
Other major companies reporting earnings this week include
Tencent Holdings Ltd. and Take Two Interactive Software, Inc. on
Monday, Alibaba Group Holding Ltd. (BABA) and Cisco Systems Inc.
(CSCO) on Wednesday, Nvidia Corp. (NVDA) on Thursday and Deere
& Co. (DE) on Friday.
Fed officials will also be out in force. Highlights include
speeches by Boston Fed President Eric Rosengren and Fed Vice
Chairman Richard Clarida at a Boston event Monday morning, remarks
by New York Fed President John Williams in Switzerland early
Tuesday, and a speech by Kansas City Fed President Esther George in
Minneapolis on the same day.
Fed Vice Chairman for Supervision Randal Quarles testifies
before the Senate Banking Committee on Wednesday morning. Fed Gov.
Lael Brainard is scheduled to deliver a speech on the economy and
monetary policy on Thursday.
(END) Dow Jones Newswires
May 13, 2019 06:33 ET (10:33 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.