All about the Consumer

Retail Me Not

Macy’s was definitely not giving thanks for their parade to the bottom of the board this week, falling 17.7% on Thursday after they reduced their guidance for sales and earnings after upgrading it only two months ago. The catalyst? Consumers had put up the best holiday sales numbers in six years at the beginning of the holiday season (Black Friday), but then basically just stopped shopping until Christmas so retail sales were really weak in December. Numbers from Target and Costco were a little more promising but the headline news about Macy’s brought down stocks across the entire retail sector – Kohl’s, L Brands, and Nordstrom were among the biggest losers after Macy’s. Amazon, on the other hand, reported record-breaking holiday sales this past year.

Moral of the story: Weak sales numbers at Macy’s are not a direct read-through on the US consumer’s spending. Consumers are spending money but they are being picky about where and how they choose to spend that money – with retailers that provide a convenient and compelling experience.

The Price is Right 

After last week’s strong employment data and Fed speak, the markets were eyeing the CPI data this week. Reason? The Fed’s dual mandate of maximum employment and stable prices, with 2% being the magic number for prices. Last week we saw the maximum employment and this week we were looking for those stable prices. Results? Ask and you shall receive – we actually came in at 1.9% because of lower oil prices, which might bounce back based on what we’re seeing of oil prices right now bringing next month’s inflation reading closer to the 2% number.  

Moral of the story: Price pressures at the consumer level are stable and, combined with the strong employment numbers, don’t raise any urgency for the Fed to raise interest rates – cue collective sigh of relief.

Truce Trumps Tantrums 

Mid-level officials from the US and China met in Beijing this week and it seems like negotiations are actually progressing (Congress should take notes) as senior officials are expected to meet in DC later this month to continue the conversation. We have until March 2nd to get this sorted out before Trump increases tariffs on $200b Chinese imports. While the trade talks seem to be progressing, the Chinese consumer seems to be developing a grudge against US products as we’ve seen Chinese imports of US goods plummet over the last few months. The market saw it last week with Apple’s weakness in China and this week we heard similar concerns about Starbucks. This, combined with the impacts of the government shutdown, could seriously impact US companies’ earnings this year, which are already facing pressures from slowing global growth. 

Moral of the story: All eyes will be on earnings season starting in full-swing this week, which will include companies providing guidance for their expectations in 2019. If companies provide fuel to the fire of slowing growth plus these negative extraneous factors, the stock market is going to see some downward pressure. 

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