Market’s Rebound on Retail Sales Report Could be Temporary

Posted by Patrick O'Connor on 6/12/08 8:22 am

The main stock indexes regained some ground today after the May retail sales report came in stronger than expected.  Sales were up 1.0% for the month, double the consensus estimate, and March and April’s results were revised higher by 0.3% and 0.6%, respectively.

The problem with this report is it will fan rhetoric for higher interest rates now that central banks around the world appear to be working together to put a lid on inflation.  The potential for higher rates is not going to help the overall stock market.  Moreover, the retail sales result wasn’t all that impressive when you consider the enormity of the tax-rebate checks.

“I’ve noted for weeks that with retail sales running at a pace of $385 billion per month, it takes an increase of just $3.85 billion to push retail sales up a percentage point.  That’s a small sum in comparison to the $120 billion in tax rebate checks that the government has issued,” said Tony Crescenzi of Miller Tabak & Co, in an article in The Wall Street Journal.

When you ponder a retail sales increase of just 1% after the government pumped that much money into the system, you have to wonder if a lot of the stimulus was used to pay down debt, like gasoline credit. 

The retail result is not reflective of the true state of the consumer, in my opinion.  Consumer confidence is down to levels not seen in 16 years, and the unemployment rate bounced 0.5% in May, the biggest one-month jump in more than two decades.  Meanwhile, food and gasoline costs are soaring.

Today’s weekly jobless claims jumped 25K to 384K, much more than the 370K consensus.  Although these numbers can be volatile week to week, they could get much worse when the annual auto-retooling shutdown begins.

“With auto sales in freefall this likely will be a much bigger event than implied by the seasonals, so you should expect to see a couple of very high [jobless claims] readings,” said economist Ian Shepherdson in a note to clients.

I don’t think the stock market will respond all that favorably to a big spike in jobless claims and heightened inflation fears coming from several central banks.

With that said, investors should stay focused on sectors that are benefitting from inflation, such as energy, steel, agriculture, etc.  This is not the time to jump back into beaten down sectors, like financials and consumer discretionary. 

Keep in mind that tomorrow’s CPI report could be ugly.

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T. Boone Pickens Thinks Oil will Hit $150 this Year

Posted by Patrick O'Connor on 5/20/08 1:45 pm

T. Boone Pickens says the high price of oil has nothing to do with speculators or a weak dollar driving prices higher and everything to do with supply and demand.  Simply put, he says the world can produce 85 million barrels per day, but the market needs 87 million.  Watch both CNBC video clips.

Oil prices topped $129 today, another new all-time high.

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