Daily Market Update – May 14, 2015  (9:00 AM)

 

More retail sales reports are coming and they continue to be disappointing.

The news is basically all the same and what it all has been saying, so far, as that if there is any evidence that people are getting more money, they’re not spending it on discretionary items.

We don’t exactly know where it is going, but it’s not going to the major national retailers that have reported their earnings. Also, if the last quarter is any guide, then the more upscale retailers won’t be where the money is going either, as those had dome fairly well even while more mainstream retailers were flagging.

This morning the pre-open futures seem to like the news that retailers aren’t doing that well.

To those who believed that there would be increasing consumer led strength in the economy and that strength would then lead to the Federal Reserve raising interest rates, the earnings data is disappointing.

After some early earnings news came some PPI data, which looks at pricing.

Again, there’s absolutely no evidence that inflation is creeping in. If the FOMC is truly going to be data driven, then there’s not much reason to suspect that they will be acting in a way that the data doesn’t support.

So in this case, bad news is interpreted as being something good.

The reality, though, is that these incredibly low interest rates that we’ve now had for years, haven’t really done what they normally do. They haven’t spurred business expansion and they haven’t spurred home sales. The argument may be, however, that those would have been far worse than where they currently stand following 2008’s financial meltdown.

We’ll never know if that’s the real way it is, but even if that’s the case, it would be hard to identify and real acceleration phase of expansion, as you would normally see. Instead, we’ve had the kind of expansion that may be similar to what a frog doesn’t really get to experience when he’s in a pot that very slowly gets bought to a boil.

This morning the futures are heading toward a triple digit gain. Normally those kind of large moves have some staying power once trading begins, but we saw that not to be the case earlier this week when the market was poised to open with a large loss.

So who knows?

With these last 2 days of the week I’m just hopeful that this morning’s gains do have some staying power and make it easier to either get rollovers accomplished or see some of those positions assigned. I would much rather see the assignments, but would definitely not scoff at the rollovers.

With the negative retail news likely to continue as the week comes to an end, it’s understandable how the equity markets could look at the bad news as being good. But as earnings season is coming to its end, you do have to wonder “what’s next?”

For the most part companies have been giving less than optimistic guidance to prepare us for the revenue and earnings shocks of the next quarter. However, as Euro-USD parity is becoming less of a certainty, those guidance projections
may end up being too pessimistic and there may be some mid-stream corrections reported as the next earnings season approaches.

Until then and if that happens, it’s still not too clear where the next boost comes from, although interest rate are still likely to be the next reason for weakness, as soon as any life is discovered in the economy.