Better-than-expected retail sales fail to significantly boost markets

MANHATTAN (CN) — The economy is booming, inflation is red-hot, and Wall Street is chugging along, though not quite as quickly as in weeks past.

By the week’s end, the Dow Jones Industrial Average lost 485 points, but the S&P 500 and Nasdaq both nabbed slight wins, gaining 15 points and 197 points, respectively.

Some see the tempered gains on Wall Street as a signal to a muted winter, though they caution that a bear market is not necessarily predetermined. “By no means is this bull market over, but that doesn’t mean risk management is to be ignored,” James Vogt of Tower Bridge Advisors wrote.

That is particularly true since in recent weeks data from the government — including the consumer price index (CPI) and personal consumption expenditures — have shown inflation has been less than transitory.

Going hand in hand with inflation, however, has also been increased spending. Largely due to the $2.7 trillion in savings they hoarded during lockdowns, American consumers opened their wallets a bit more last month. According to the U.S. Census Bureau, retail sales jumped 1.7% last month, compared with a 0.8% increase in September, well above what analysts has predicted and a pleasing surprise for Wall Street.

“We all know the worries, but this is yet another reminder the U.S. consumer remains extremely healthy,” said Ryan Detrick, chief market strategist at LPL Financial. “Don’t forget the consumer makes up two-thirds of the economy, so this is another great sign for our economy as we head into the holiday spending season.”

The retail data helped propel markets upward, putting the S&P 500 near to a new record high. Gasoline station sales skyrocketed up 3.9%, while online sellers increased by 4%. The only area where spending was flat was at bars and restaurants, which could be chalked up to the spreading delta variant earlier this autumn. Even there, though, numbers are now roughly what they were in early March 2020.

“With the mix of spending moving away from services and back to goods, the pressure on supply chains is only going to get worse in the coming months, putting further upward pressure on prices,” wrote Michael Pearce, senior U.S. economist at Capital Economics. He predicts consumption will increase between 3% and 4% annualized during the fourth quarter.

Others warn not to miss the forest for the trees, claiming that red-hot inflation means the increase in sales is actually a decrease. Peter Boockvar, chief investment officer at Bleakley Advisory Group, noted that while headline retail sales have increased 2.4% since March, headline inflation is up 4.4% during that same period.

“Thus, at least from this back-of-the-envelope calculation, REAL retail sales after March is down 2%,” he told investors in an note. “Falling REAL wages is also not a help.”

Once again, a number of corporate earnings reports also keep investors grinning. In its release, Macy’s showed sales that beat out analyst forecasts, with $5.4 billion in revenue last quarter and $239 million in net income. The retailer’s comparable sales were up 36% compared with last year, and a nearly 20% increase in digital sales year over year.

Fellow retailer Walmart showed a 9.3% year-over-year increase in net sales and a 4.3% year-over-year increase revenue during that same period. “Our momentum continues with strong sales and profit growth globally,” CEO Doug McMillon said in a statement. “We gained market share in grocery in the U.S., and more customers and members are returning to our stores and clubs around the world.”

Home Depot also was a huge benefactor, posting a nearly 10% increase in net sales last quarter and a $800 billion year-over-year increase in net earnings. Company executives told investors that its fourth quarter sales were already on track to better resolution than the fourth quarter of 2020.

On the jobs front, unemployment claims continued their downward trajectory, with initial claims for the week ending November 13 hitting 268,000. The number is just 1,000 lower than the previous week, but continuing claims also have dropped, to just above 2 million. A huge drop in claims from California represented one-third of the total decline in continuing claims.

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