Success: the only option. Stocks rose yesterday on positive news of retail spending, virus treatments, and congressional spending. The Fed cast a cautious tone while buying bonds in the open market and investors love it!
N O T E W O R T H Y
I’ll take ‘em, all of em’. It has been too long. Too long since I have harped on one of my favorite drivers of economic growth: wait for it….. the Consumer. A quick reminder - consumer spending makes up roughly 70% of economic growth in the US. That is right, the stuff you and I buy at the store…. er… online. Consumer spending is driven by need and want with the balance between the two being dictated by confidence. When the pandemic struck confidence went down causing investors to take “wants” out of their shopping cart and move them into the “wishlist”. Further, unemployment and salary cuts certainly changed spending priorities. It became a time of “needs”. Those would be consumer staples such as basic necessities. Remember that those are defined as: food, beverage, hygiene products, household goods, and (of course) alcohol and tobacco. Folks generally continue to buy those types of products in all conditions… and we did just that, stockpiling basic necessities for the long haul lockdowns. It was something, but not enough to avoid the reduce in retail spending by quite a bit. Specifically, the Census Bureau’s Retail Sales Figure for March showed an -8.7% drop and April's number recorded a decline of -16.4%. There goes GDP growth. But not for long. That same figure for May was released yesterday and relayed a record-breaking +17.7% growth. Want to guess what the biggest driving categories were? Clothing / accessories, furniture / home furnishings, sporting goods / hobbies, and electronics / appliances. Oh, and automobiles / auto parts gets an honorable mention. It would seem that “wants” are starting to overtake"needs" again. Restrictions are slowly lifting and sentiment appears to be improving. Last Friday, the timely University of Michigan Sentiment Indicator came in at a higher-than-expected 78.9, up from the prior reading of 72.3. All good signs that we are hopefully past the worst of the contraction. To be clear though, we still have a long way to go. Employment needs significant improvement, and consumer sentiment… well, that same Michigan number was at 101 just a few months back in February.
Cautiously not cautious. There have been a lot of stories about Davey Day Trader and the Robinhood Bros lately. I even wrote about the swashbuckling, usually young, uninformed, wildly speculative group of traders that have emerged in the lockdown with no betting on live sporting events and no-frills online brokers. Many believe that the group was a big driver of the recent rally as they rushed in to buy the “hot stock of the day” without fear… or fundamentals. It explains some of the disconnect between the market and the real economy that has left seasoned institutional money managers scratching their heads. I have also reported that those money managers have been largely sitting in safe bets like money markets and high quality bonds. Well, evidence now suggest that those managers are reluctantly getting back in the game, tired of sitting in the shadow of an obscure video blogger better known for his pizza ratings and pop culture blog posts. Yesterday, a monthly Bank of America fund manager survey showed some interesting results. The survey relayed that money managers were overweight in stocks for the first time since February. Further, the survey showed the largest decline in cash balances since 2009. Hedge funds are in it too, with their net equity exposure up to 52% from 34%. That is somewhat encouraging for stocks, though there is also evidence that those managers maybe somewhat reluctantly be investing in the now-overvalued asset class (78% of them think stocks are overvalued). Only 18% of respondents believe that the recovery will be V-shaped, with the balance expecting a U or W-shaped recovery. By the way, pizza stocks have been soaring, and David Portnoy, AKA Barstool Presidente, AKA Davy Day Trader is losing lots of money trading stocks but still making lots of money in his daily trade: entertainment.
THE MARKETS
Stocks rallied yesterday closing off their highs but well into the green from promising news on virus treatments, retail sales, and resurgence in discussion around fresh stimulus from Capitol Hill. While news of fresh lockdowns in Beijing slowed progress somewhat, positive sentiment carried the day. The S&P500 rose by +1.90%, the Dow Jones Industrial Average added +2.04%, the Russell 2000 traded up by +2.30%, and the Nasdaq Composite Index advanced by +1.75%. Bonds slipped and 10-year treasury yields climbed by +3 basis points to 0.75%.
NXT UP
- Housing Starts (May) are expected to have jumped by +23.5% compare to a 30.2% decline in the prior month.
- Building Permits (May) are expect to have advanced by +16.8% after falling by a revised -21.4% in April.
- Jerome Powell will spend another day meeting with law makers. Today, he will meet with the House Financial Services Panel at 12:00 PM EST.
- The Cleveland Fed’s