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Market contemplates slower growth after retail sales report

Posted June 18, 2024 at 9:30 am
Patrick J. O’Hare

It is not Friday, but it feels a little like Friday since the market will be closed Wednesday for the Juneteenth holiday. Accordingly, trading interest could subside soon after the open as market participants turn to other summer-minded pursuits.

Then again, given the seemingly insatiable appetite for mega-cap stocks and some flavor-of-the-day meme stocks, you can’t take for granted that it will be a dull day.

Five Fed officials, including two voting FOMC members — Richmond Fed President Barkin and Fed Governor Kugler — will be speaking today; there will be a $13 billion 20-yr Treasury bond reopening with results announced at 1:00 p.m. ET; and Boeing (BA) CEO Dave Calhoun will be testifying at 2:00 p.m. ET before the Senate’s Permanent Subcommittee on Investigations.

For now, however, the market’s attention has been fixed on the May Retail Sales Report, which was weaker than expected and featured downward revisions to April’s report as well.

Total retail sales increased 0.1% month-over-month in May ( consensus 0.3%) following a downwardly revised 0.2% decline (from 0.0%) in April. Excluding autos, retail sales declined 0.1% month-over-month in May ( consensus 0.2%) following a downwardly revised 0.1% decline (from 0.2%) in April.

The key takeaway from the report is that it reflects some slowing in consumer spending on goods that will be accounted for in weaker Q2 real GDP forecasts.

The Treasury market looked focused on the slowdown aspect, as yields headed south immediately after the report’s release. The 2-yr note yield, at 4.77% before the release, is at 4.72% now, down four basis points from yesterday’s settlement. The 10-yr note yield, at 4.29% before the release, is at 4.25% now, down three basis points from yesterday’s settlement.

Strikingly, the equity futures market has not been energized by the drop in market rates. A slowdown in consumer spending, if not an actual decline, is a drag on economic growth that could very well end up being a drag on earnings growth, so a richly valued market that closed at a new record high yesterday looks to be holding back for now.

Of course, we have been down this road before with the market contemplating the idea of growth weakening, and it seems all that has done is foster more interest in the stocks of mega-cap companies, which are regarded as defensive plays for the healthy balance sheets and market-dominant positions.

It will be interesting to see if this softer retail sales report plays into their hands again today or is treated as an excuse to take some money off the table.

Other economic data today includes the May Industrial Production and Capacity Utilization Report at 9:15 a.m. ET, April Business Inventories at 10:00 a.m. ET, and April Net Long-Term TIC Flows at 3:00 p.m. ET.

Currently, the S&P 500 futures are down one point and are trading fractionally above fair value, the Nasdaq 100 futures are up 17 points and are trading 0.2% above fair value, and the Dow Jones Industrial Average futures are down 15 points and are trading roughly in-line with fair value.

Originally Posted June 18, 2024 – Market contemplates slower growth after retail sales report

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