Retail Wednesday – Is America Shopping?

Retail Sales.

They make up 60% of our GDP and December’s Retail Sales were down 0.7% in December from the previous month, rather than up 3-4% as expected for the holidays.   Anything positive this month would be an improvement but the trend has not been our friend recently.  Excluding Autos, the trends are far worse as people still bought new cars last year, something the auto industry wisely locks in as 26% of all cars (50M) in the US are leased – so you HAVE to get a new car every 3 years or so.

14.6M cars were sold in 2020 and that’s pretty much the amount of lease turnover for a year.  Auto Sales overall were down 15.5% from 2019 and even leasing was down at 26% from 30%, so that dropped about 15% too.  The key takeaway from the last Retail Sales Report is that it was clear that Consumer Spending decelerated at the end of the fourth quarter, partly because of expiring benefits, weakening confidence in the short-term outlook, and restrictions on certain activities due to worsening coronavirus trends.

• Motor vehicle sales increased 1.9% m/m after declining 1.5% in November
• Gasoline station sales were up 6.6% after declining 1.6% in November
• Electronics and appliance store sales dropped 4.9% m/m following an 8.3% decline in November
• Nonstore retailer sales fell 5.8% after declining 1.6% in November
• Food services and drinking places sales declined 4.5% after declining 3.6% in November

We’ll see what we get in the 8:30 Report but, to give you and idea of how insane the market is these days, this is what the Retail Sales ETF (XRT) looks like DESPITE these FACTS:

Up almost 100% from previous years – AMAZING!  That’s the extent to which the market has left reality behind.  The index didn’t change, the profits are down SIGNIFICANTLY but traders (I can’t call them investors) are paying DOUBLE for the same stocks DURING the pandemic.  EVEN if we fully recover and EVEN if everyone goes back to work (still 10M less jobs) and even if things look promising – HOW do we justify a 100% increase in the price of stocks in the Retail Sector?  

8:30 Update:  Forget Retail Sales, PPI popped 1.3% – that’s a crazy jump in inflation but, on the bright side, that was driven by a 5.3% jump in Retail Sales, led by a 14.7% increase in electronics and appliances and a 4% jump in Gasoline Sales.  Overall, this sounds pretty good but there’s a danger here that it’s so good that it takes the Fed off the table – as they can’t afford to let inflation get out of control.  This market is up more on stimulus than actual activity.  Of course it was just pointed out to me that a lot of people got checks in early January – so we have to take that into account on these numbers.  

We’ll find out tomorrow if Oil (/CL) benefitted from the same burst of consumer spending but, keeping in mind that you don’t have to drive to shop, I’d say tomorrow’s report will not be supportive of $60.  Nonetheless, /CL is over $61 this morning and we will once again Double Down with tight stops above, looking once again to improve our average cost per contract.  As I pointed out yesterday in our Live Member Chat Room at 12:25, there’s no point in adding more shorts if you don’t take a profit so we took 0.25 and ran yesterday and we’ll do the same today if $60.75 looks too bouncy.

We’re very confident in our oil shorts and we just pressed our SCO longs yesterday as we simply don’t see the justification for this 20% run from $50 at the start of the year and from $40 for the 2nd half of 2020.  Sometimes you just have to bet on reality…

We’ll see how the market reacts to strong retail numbers and we have Fed Minutes at 2pm and those tea leaves should give us enough spin not to have a big sell-off today.  Tomorrow we’ll see if Housing Starts or the Philly Fed benefitted from those stimulus checks as well and Friday we get Existing Home Sales and On-Line Sales so plenty of data to guide us into what’s already the last week of February coming up.

Provided courtesy of Phil’s Stock World.