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Real Time Insight


Earlier this morning the Commerce Department reported that retail sales contracted in March for the second time in three months.  Could this be a(nother) sign the American economy could be faltering?

Retail sales fell 0.4 percent during the month, below analysts' expectations for no change, cored retail sales fell 0.4% as well versus expectations for -0.1%.  Last month retail sales only showed a 0.5% rise, which was less than half of the 1.1% analysts were expecting. The government “revised” the February reading to 1 percent for February, making the miss a little less pronounced.

I think it’s fair to say that retail sales readings have been unstable so far this year.  This makes it difficult to know whether the weakness in March was due to a tax hike that went into effect at the start of the year or maybe to temporary weather related factors.

Many retail stocks like Gap Inc (GAP), Macy’s (M - Analyst Report), Target (TGT - Analyst Report) and even the retail ETF (RTH - ETF report) are booming this quarter and brushing off weaker than expected sales, economic data, tax hikes and the sequester. 

But when you couple this mediocre to poor retail data with the recent rash of poor data last week in employment, PMI and this morning’s fourth month in a row miss in Consumer Sentiment (72.3 versus expectations for 79.1), one has to wonder if the puzzle pieces are coming together for a sell in May and go away type scenario.

My Thesis

Historically speaking, we have seen the data degradation and stock selloff for the last three years straight.   Let’s not forget that markets have come a long way since the bottom and are breaking through new highs.  Without the economic data to support the rally, I think logic will eventually come into play here and send stocks into correction mode.

I remember feeling this euphoria every year (for the last three) around this time and at the same time feeling nervous about it. 

We also heard in the recent Fed minutes that the punch bowl could be pulled sooner than later.  In my opinion, the markets peak in April as do economic readings on average.  I think “Sell in May” might be a good idea.

What do you think will happen come May (summer)?

1.    Economic data worsens; stocks drop sharply

2.    Economic data worsen; stocks shrug it off and go higher

3.    Economic data remains flat; stocks correct because they need a break

4.    Economic data improves; stocks keep on rallying

5.    Other

Let us know how you think this summer will pan out in the marketplace!


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