Stocks surprised to the upside yesterday, likely in response to, at least in part, the better than expected retail sales numbers. In short, the report shows the consumer in a pretty good mood heading into the all-important holiday shopping season.
Digging into the numbers, we find that retail sales rose 0.8% in October, which was above the consensus of 0.6%. Additionally, the previous month was revised upwards to 1.0% from 0.6%.
This resulted in the biggest back-to-back increase since April 2014, and suggests consumer spending could very well be a key driver of growth in the final quarter of 2016. And lest we forget, the Retail Sales report had been coming in weaker than expected lately, so the more recent numbers are indeed a breath of fresh air from an economic standpoint. And while I recognize that this next economic data point might be a bit “wonky” for most advisors on a Wednesday morning, it is worth noting that the Atlanta Fed’s GDPNow Model is currently projecting a 3.3% annual growth for U.S. GDP in Q4. Keep in mind that this is a pretty decent number and is also well above the “slow growth” expectations that currently dominate the consensus view on economic growth.
So, rest assured that if we start to see some supporting evidence that economy is improving, the stock market will likely take notice. In addition, we’ve got some Fedspeak this morning that is interesting. Federal Reserve Bank of St. Louis President James Bullard said today that Trump’s policies could lead to a medium-term boost to the U.S. economy. Mr. Bullard, who has moved markets in the past with his commentary, added that a single rate increase “possibly in December” would be sufficient to move policy to a neutral setting. What does this mean for the markets, you ask? Looking at the futures, the current market-implied odds of a rate hike next month are approaching 100%.
However, Bullard’s comments seem to suggest that Yellen & Co. could be “one and done,” which could help markets as we head into 2017. However, Minnesota Fed President Neel Kashkari – who was a key player during the financial crisis – released a 50-page report today, detailing his bank’s views on ways to end the problem of “too big to fail” banks. In short, Kashkari suggests that capital requirements at the nation’s biggest banks be significantly increased. While the plan is brand new and a long way from being even considered, this could put a damper on the recent run in bank stocks. Turning to the markets, it looks like we could see a pause in the recent rally – at least at the open.
We also note that bond yields are continuing to rise a bit this morning as traders continue to adjust to the new expectations going forward. And as I’ve been saying, this remains something to watch. Current Market Drivers We strive to identify the driving forces behind the market action on a daily basis.
The thinking is that if we can both identify and understand why stocks are doing what they are doing on a short-term basis; we are not likely to be surprised/blind-sided by a big move.
Listed below are what we believe to be the driving forces of the current market (Listed in order of importance).
1. The State of the “Trump Trade”
2. The State of Global Central Bank Policies
3. The State of Interest Rates
4. The State of Global Economies
Thought For The Day:
Don’t be afraid to take a big step if one is indicated. You can’t cross a chasm in two small jumps. -David Lloyd George
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