Guess who’s back, back again

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Retail sales rose for the fourth straight month in June, hopefully indicative of a rebound in consumer spending. Sales increased by 0.4% last month, surpassing economists’ estimates. Gains continued for internet retailers, restaurants, grocers, and home furnishings while department stores continued down the path to their slow and steady demise (insert depressing music here). Sales also fell pretty sharply at gas stations due to falling oil prices. If you normalize results for falling oil prices, retail sales actually would have increased by 0.7% in June. 

Moral of the story: It seems like consumer spending has come back after taking a break. Given this is such a large part of our GDP, it’s good to see some improvement that (fingers crossed) will flow into economic growth for the second quarter. This rebound in retail sales comes in tandem with rising consumer sentiment as the labor market remains strong despite rising economic headwinds. 

Weakest Link

The New York Fed’s manufacturing survey (which fell into negative territory last month) and he Philadelphia Fed’s manufacturing index (which also fell precipitously last month) both came back in a big way in July and indicated improving six-month outlooks. The Philly Fed’s index actually posted the highest reading in a year.

Moral of the story: While I’m glad neither index fell further, both are still far below their respective levels in late 2017/early 2018 as manufacturing continues to drag down economic growth and provide a reason for easing monetary policy. In fact, Fed speak this week led the market to believe that a 0.5% (not just 0.25%) interest rate cut could be possible during the upcoming FOMC meeting.

Earnings are here! 

Earnings season is officially back and started with results from the banks and some tech names we know and love. The big banks largely saw healthy results from their equity trading, wealth management, and investment management divisions as the stock market performed well in the second quarter. However, they cautioned the market on the impact of Fed rate cuts on their interest income, which accounts for a large part of their earnings. Of the large tech companies that reported, Netflix created a big buzz by whiffing on subscriber additions, blaming its content slate and increased subscription prices for the weakness. Management did promise investors that subscriber numbers would be back up next quarter but the streaming wars are heating up.

Moral of the story: Expectations for earnings have been lowered effectively across the board, so companies are going to have a fairly easy bar to overcome. While most of the big releases this week did overcome that low hurdle, large misses like Netflix are going to cause concern. As we move into the busier weeks of earnings season, I’m most worried about the impacts from trade tensions becoming a little more evident.