We’re finally seeing some of the good data that were widely expected for the December releases. I was beginning to wonder; given the worse than expected ISM print last week and a few other not so rosy data points.
Now, not to rain on the market’s parade, but the better expectations for December data were as much, if not more, about “base effects” as they were about the belief that we’re finding our way out of the woods (yes, the economy is presently in the woods). By “base effects” I’m referring to the fact that the data are generally scored based on how they perform on a year-over-year and month-over-month basis. And of course you recall how December of 2018 delivered the worst December for stocks since 1931 (after having already dropped 7% during the weeks leading in) — hitting sentiment and activity pretty notably at the time.
So, needless to say, December 2018 was going to be a relatively easy comp. Case in point being this morning’s positive retail sales number.
Here’s Hedgeye’s Christian Drake on the topic:
“As we discussed last month, calendar effects and the late Thanksgiving holiday pushed the post-thanksgiving weekend and Cyber Monday into December … a condition which carried the potential to negative distort November sales and positively distort reported December Sales.
Stealing from Peter (November) to pay Paul (December) effectively represents a timing effect and one where simply taking the Nov/Dec avg and comparing it to the prevailing (pre November) Trend should largely resolve the distortion.
Additionally, the cratering in confidence and consumption that characterized the collective realization of Quad 4 in 4Q18 is the comp, creating a positive base effect setup for December in particular.”
Here’s Gant Thornton’s Chief Economist Diane Swonk:
“Retail sales rose 0.3% in December following upward revisions to the previous two months. Holiday-related spending was mixed with strong gains at apparel and accessory stores but a large miss at more traditional department stores. Sales at department stores actually fell nearly 1% on a seasonally adjusted basis during the month and 5.5% for the year.
Online sales were not as strong on a month-to-month basis as many expected. Year-over-year gains in the online category surged but should be taken with a grain of salt. Last year, consumers actually pulled back during the last weeks of the holiday season in response to fears of a full-blown trade war with China.”
“Consumer spending held up but the pace slowed during the last months of the year. Core retail sales bucked the trend in overall sales and were revised down during the two previous months.
Consumers showed up and spent during the last days of the holiday season. Those gains were not enough to lift all boats. We have already seen another surge in store closure announcements. Brace for more.”
As for the bull market in stocks; onward, upward and buy every dip is clearly the prevailing mantra.
The question that can only be answered after the fact is, are we witnessing the market working as a discounting mechanism that is foreseeing better economic times ahead, and pricing shares accordingly? Or are we experiencing that final thrust of an extended bull market that sucks in the proverbial last-to-show-up individual investor before delivering the ever-painful reminder that — Fed money printing, trade deals, promise of more tax cuts, etc., aside — trees simply don’t grow to the sky?
Well, of course we can’t know for sure, so we stick to the data. And, indeed, base effects notwithstanding, some positives have emerged. For now, we crunch them, put them in their proper context, keep an open mind and invest accordingly.
Thanks for reading!
P.s. Clients, in case you’re wondering if my cautious tone of late means we won’t be catching any of this never-ending (till it does) upside, no worries, [while one day does not a trend make] as I type on this record-setting morning, 21 (representing 83% of our total weighting) of our 25 core positions are in the green.