A little late in posting today, Monday’s can be hectic. Let’s jump right in and have some fun.
THE KEY ECONOMIC LANDMARKS WE PASSED
1. Retail Sales: 0.6% vs. 0.6% est.
Hello there shopper! We thought you went away. You were just hiding behind revisions it seems. A great August report coupled with an upward revision for July should close the door firmly on the question of spending tailing off. A drop in gas prices (shown best by the -0.8% decline in MoM sales) likely provided fatter wallets to be used at furniture and appliance stores, both of which saw 0.7% increases. Mild weather also probably added to the picture. Usually we all spend August indoors with AC/DC on blast…I mean the A/C. All-in-all, this report leaves me…bum bum bum THUNDERSTRUCK.
2. Consumer Credit: $26B vs. $17.35B est.
Much of the buildup in consumer credit lately has been from the auto sector and student loans. Both areas have at least triggered attention but most likely remain under high alert levels. It all comes down to affordability. As long as consumers are buying within their means, we are on the right track. The default rate has ticked up lately but is still far off from recession highs. Just another data point to keep an eye on. A healthy job market and rising asset prices will likely prevent a larger issue so until the environment flips upside down, there is no need to hit the big red panic button.
LAST WEEK’S MARKET IN THE REAR-VIEW: “Muted consolidation off record highs”
Stocks took a breather last week after hovering around 2,000 for a few days. A bit of worry has crept into the market in regards to the expected rate hike coming in 2015. Anyone else feel like we are waiting for a blockbuster movie? Depending on which side you are on, the tag line is either: “A chilling tale of tightening monetary policy coming to markets in the spring of 2015, The Ratepocalypse!” or “A forbidden relationship between a financial instrument and a recovering economy coming to markets in late-2015, “A Slow Rising Affair.” I digress. It is Monday…sometimes you just need to make yourself laugh a bit. There were actually a multitude of catalysts last week which both gave reason to sell and reason to buy, including Apple’s new devices, further sanctions against Russia, some M&A activity in the food space, excitement about Ali Baba’s IPO, and strong consumer reports. A 1% dip over the course of a week is a shoulder shrug, especially coming off year and decade highs. I’m sure CNBC has a sell-off special report queued up already but ignore the talking heads.
LOOKING THROUGH THE WINDSHIELD
Much of the focus for the week will be on the Fed as QE3 winds down to the last little bit and more guidance (hopefully) is given in regards to rates. Some housing numbers (starts, permits, etc) will show where the state of the market is as we leave the summer season and head into fall. Industrial production already came out and along with capacity utilization, was disappointing. These numbers will be covered next week.
The minor setback in equity prices could see continuation this week based on technical indicators, the Fed, economic numbers, and a whole host of other variables. On the flip side, we could bounce off these levels and provide solid support for the move into the end of the year. Most price targets remain north of 2,000 for the S&P 500 with some near the 2,050 to 2,100 levels. Personally, I think we end comfortably on a 2,000 handle to bring in low double digit returns (assuming dividends re-invested) for 2014.