Sunday, November 14, 2021

Morning Note: "The Key to Retail Sales"

Here's Bespoke Investment Group's intro to their market commentary this morning (I'll bold the part that jibes with the macro update I sent out over the weekend):

""The challenge of the retail business is the human condition." - Howard Schultz

We're heading into the final days of earnings season this week, and so far the results have been very positive.  Whether earnings season ends on a positive note or not will depend on how the market reacts to a slew of high profile earnings reports from the retail sector - most notably Walmart (WMT) and Home Depot (HD) on Tuesday, Lowe's (LOW) and Target (TGT) on Wednesday, and then Kohl's (KSS) and Macy's (M) on Thursday. 
Consumers still appear to be in a strong financial position but as last week's sentiment report from the University of Michigan showed, they aren't feeling particularly optimistic. And as the quote above implies, consumer sentiment is the key to retail sales."

China presented economic data overnight that showed better than expected retail sales and industrial production (although still slowing). While Japan, a place we presently like, reported that its economy contracted at a 3% annualized clip last quarter, which was notably worse than expectations. Its stock market, nevertheless, closed higher on the session, reflecting -- for the moment anyway -- our longer-term optimism.

Asian equities on balance rallied overnight, with 11 of the 16 markets we track closing higher.

Europe's mixed so far this morning, with 9 of the 19 bourses we follow in the red, as I type.

US major averages are mixed as well: Dow up 80 points (0.23%), SP500 up 0.11%, SP500 Equal Weight up 0.30%, Nasdaq 100 down 0.14%, Nasdaq Comp down 0.08%, Russell 2000 down 0.19%. 

The VIX sits at 16.98, up 4.24% (denoting caution this morning).

Oil futures are down 1.42%, gold's down 0.18%, silver's down 1.09%, copper futures are down 0.29% and the ag complex is up 0.39%.

The 10-year treasury is down (yield up) and the dollar is down 0.01%.

Led by Viacom/CBS, KRNB (carbon credits), utilities, banks and industrial stocks -- but dragged by ALB (lithium miner), uranium miners, metals miners, solar stocks and Nokia -- our core portfolio is off 0.14% to start the session.

Our colleague Hari Krishnan in his latest, and excellent, book Market Tremors points to the very precarious corner the Fed finds itself in:

"Negative rates create dangerous incentives to agents who want to lever their portfolios to the moon. By contrast, raising rates from a 0% base by even a small amount can be destabilizing."

Have a great day!

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