Retail Sales Prove Resilient

• Blowout Retail Sales in August equals + 0.7% increase versus -0.8% expected decline…Consumer is Still Spending Money
• The S&P 500 Finished Lower for the Second Consecutive Week
• Latest University of Michigan Consumer Sentiment Survey Shows Little Change Since August Release…Not a lot of Confidence in the Current State of the Economy
• Delta Variant Continues to Dominate the Headlines, Partly Due to Muddled Booster Rollout
• Inflation Issues and Supply Chain Concerns Persist

U.S. stocks ended the week mostly lower as investors weighed the positive retail sales report with concerns over global supply chains, inflation, and Covid-19.
The Dow Jones Industrial Average ticked down -0.1% to 34,585, while the technology-heavy NASDAQ Composite fell a half percent to 15,044.
By market cap, the large cap S&P 500 gave up -0.6%, the mid cap S&P 400 fell -0.3%, and the Russell 2000 rose +0.4%.

The Covid effect reared its ugly head two weeks ago in the release of the University of Michigan Survey of Consumers.
People surveyed said they would change their behavior to adjust to the concerns created by the Delta variant. This reaction to the variant is leading the way for several economic forecast changes.(See last week’s Market Insights.)

However, saying you will change your behavior, answering a survey question, and changing it are two different things.
As I suggested last week, look around your town. What do your eyes see – shut down, slow down, or full steam ahead? Economists are downgrading their forecasts, but my eyes are telling me something different is going on.

The bad consumer spending data in the heart of summer did not align with the current “eye” test. I assumed we would have to wait and see until possibly the release of the September retail spending numbers for a reversal of the downward trajectory.
We did not need to wait that long.

August retail spending numbers were blowout numbers. Retail spending for August increased +0.7% versus an expected decline of -0.8%.
The American consumer is more resilient than given credit. We love our stuff!

Everything from the grocery store to the big box stores saw big increases in traffic in August. One of the few weak spots was car sales, as automakers continue to grapple with the computer chip shortage.

Another boost to sales, unfortunately, came from and will continue to come from the effects of Hurricane Ida.

As we all know too well living in southeastern NC, hurricanes of that magnitude send everyone to the store to stock up before the storm hits, and back to the store for the clean up and rebuild. Since Hurricane Ida left her mark through a wide swath of the east, the potential for expanding retail sales exists for the October release of the consumer spending data as well.

Please note, the consumer spending report due out in October includes both services as well as retail sales figures.

No one is denying that the Delta variant is having an effect on behavior.

The return of mask mandates and capacity restrictions have decreased some aspects of consumer spending. As we discussed last week, travel is down and some events have been canceled.

What the retail sales number proves is, if you take something away, we will spend the money somewhere else.

The spending change appears to be away from consumer services to goods. Can’t get the experience? Then buy a product.

Look for early holiday shopping to keep the goods moving. The supply chain issues are real. The worry is that if you wait to do your Christmas shopping until the start of the shopping season, many sought after items will be gone due to the decling number available.

The disruption in normal holiday shopping patterns will change the reporting, creating the need for a deeper dive into the numbers to determine true consumer spending compared to previous holiday seasons.

If the goods are not available, will we travel more for the holidays? Travel was restricted during the holidays last year. Should we consider that in our planning to spend?

Retail sales are a glimpse into the general wealth of the American consumer.

Working Americans have experienced rising wages across the board, and they have increased their savings as many Americans are putting their current stimulus checks into savings with their earlier stimulus checks.

Working Americans are in good shape heading into the holiday season. Increasing wages combined with high savings gives consumers the ability to spend money comfortably with no fear of how will they pay for this.

The Federal Reserve continues to say the inflation experience is temporary. Some reduction in prices before the shopping season starts would be appreciated but does not appear likely.

This is a situation we will pay close attention to.

Don’t be surprised by better than expected holiday spending as long as enough goods are available.

For those of you who closely follow the stock market, you may be wondering why Wednesday was an up day in the otherwise selling trend over the last couple of weeks.

A technical marker was approached that gave the bulls (buyers) a little more confidence to put some cash to work.

The current price of the S&P 500 almost reached its 50-day moving average price, the average price of the last 50 days. We prefer when today’s price is moving away from the 50-day average, showing that the market is on an upward trend. On Wednesday, the current price approached the 50-day moving average price – a downward trend.

The trend line held as buyers came back into the market after the recent decline found the S&P 500 down around -2.5%. For most of the summer a pullback of 2% to 3% has been followed by the next rally. Seems like many investors on Wednesday were hoping this pattern would continue.

Unfortunately, selling continued to finish out the week. The two-week decline for the S&P 500 was its worst stretch since February.

Our Short Term indicator has turned negative so some cash will need to be raised in your portfolios. Based on the futures this morning, selling will continue to start the week.

We will continue to Apply our Risk Management Discipline to your Portfolio.

It is also important to remember there is a difference between volatility and losses. Remember one of our seven investing rules is “Volatility is the cost of building wealth over time.”

Thank you for your trust and confidence in our services.

If you have questions or just want to discuss the current state of the market and your portfolio in greater detail – do not hesitate to call or use your monthly progress update email to get on our schedule.

You can schedule a face-to-face meeting in the office, a web conference, or a phone call, whichever you prefer! If you prefer a home visit, please call or email the office with your request and we will do our best to accommodate you as soon as we can. We are always available.

Have a great week!

(sources: all index return data from Yahoo Finance; Reuters, Barron’s, Wall St Journal, Bloomberg.com, ft.com, guggenheimpartners.com, zerohedge.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, www.stocksandnews.com, www.chaikinanalytics.com Chaikin Analytics, www.marketwatch.com, www.BBC.com, www.361capital.com, www.pensionpartners.com, www.cnbc.com, www.FactSet.com, W E Sherman & Co, LLC)

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