Janet Yellen Spurs Santa Claus Rally

Leave it to a nice Jewish girl from Brooklyn to give Santa Claus a nudge. In its last policy meeting of the year, Janet Yellen (who hails from Bay Ridge, Brooklyn) and her cohorts at the Fed split the difference on the language used to describe when we would see an increase short-term interest rates. The central bank “judges that it can be patient (emphasis mine) in beginning to normalize the stance of monetary policy,” but also added the new description of their stance was “consistent” with past assurances that rates would stay low for a “considerable time.” Investors loved the punt, believing that the Fed is not likely to raise rates any time soon. All of the sudden, the Santa Claus Rally was ON! In fact, after a dismal start to the week, stocks powered higher Wednesday through Friday (the best three-day percentage gain for the Dow and the S&P 500 in three years) and finished within striking distance of all-time highs. Fears melted away about the oil plunge signifying a global growth slowdown and a possible financial contagion from the Russian currency crisis, allowing ol’ Saint Nick (via Saint Janet) to take control.

Meanwhile, consumers and retailers are preparing for the last gasp of holiday shopping before Christmas. Early results have been mixed, but that might have more to do with the season stretching out over a longer period, than the fact that people are spending less overall. Separate data from IBM’s real-time tracking index of digital shopping and Adobe confirm that consumers have already spent record amounts online and companies like Wal-Mart and Target reported strong holiday numbers.

These results fly in the face of the National Retail Federation’s finding that total projected sales tumbled 11 percent during the Thanksgiving holiday weekend, but it’s important to note that NRF data is based on a totally non-scientific survey, which asks random shoppers whether they plan to spend more or less than last holiday season. Considering that most consumers can hardly recall what they spent last week - let alone last year, most analysts have dismissed NRF findings.

To determine whether or not Santa delivered retailers a jolly holiday season, we’ll have to wait until the Commerce Department releases its monthly retail sales report in January and retailers report their earnings reports for the fourth quarter. Until then, it’s probably best to concentrate on the holidays themselves and not get wrapped up in guesswork.

MARKETS: Last week was a great lesson in volatility…and if you can’t take it, then you might want to consider reviewing your portfolio allocation. For the five days, Santa stuffed investors’ stockings with gifts, not lumps of coal, as indexes climbed within spitting distance of milestones (Dow 18K) and records (S&P 500 2075).

• DJIA: 17,804, up 3% on week, up 7.4% YTD
• S&P 500: 2070, up 3.4% on week, up 12% YTD
• NASDAQ: 4765, up 2.4% on week, up 14.1% YTD
• Russell 2000: 1196, up 3.8% on week, up 2.8% YTD
• 10-Year Treasury yield: 2.18% (from 2.08% a week ago)
• January Crude Oil: $56.52, down 2.2% on week
• February Gold: $1,196, down 2.1% on week
• AAA Nat'l average price for gallon of regular Gas: $2.43 (from $3.22 a year ago)

THE WEEK AHEAD: By Tuesday at 10:15ET, you can call it quits for the week!

Mon 12/22:

8:30 Chicago Fed Nat’l Activity

10:00 Existing Home Sales

Tues 12/23:

8:30 Durable Goods Orders

8:30 Q3 GDP (final reading, previous=3.9%)

8:30 Personal Income and Spending

10:00 New Home Sales

Weds 12/24:

1:00 US Markets close early for Christmas

Thurs 12/25: CHRISTMAS DAY – MOST GLOBAL MARKETS CLOSED

Fri 12/26:

Retail Therapy

What do Wal-Mart, Family Dollar Stores, Lumber Liquidators and the Container Store have in common? CEO’s from all of these retailers lamented the tepid pace of consumer spending. One even labeled the condition a “retail funk” that has infected the US economy. Let’s start with the biggie: Wal-Mart President and CEO Bill Simon told both Reuters and CNBC that shoppers have not returned to world’s largest retailer at the pace one might expect five years after the recession ended, because “middle-class and lower-class are still economically challenged, only spending during holidays and for family occasions." Despite gains in employment, Simon predicted it would take six months to a year for retailers to start seeing a sales boost from job growth. “We’ve reached a point where it’s not getting any better but it’s not getting any worse – at least for the middle (class) and down." The numbers bear out those sentiments: sales at Wal-Mart's U.S. stores have fallen for five straight quarters, and traffic has dwindled for a year and a half.

Family Dollar Stores reported disappointing quarterly earnings last week and CEO Howard Levine said, "Our results continue to reflect the economic challenges facing our core customer and an intense competitive environment." Similarly, Lumber Liquidators’ CEO Robert Lynch said that earnings were weaker in the first quarter due to bad weather, but the much-hoped for spring-awakening did not occur and “Customer traffic to our stores was significantly weaker than we expected.”

But it was The Container Store’s CEO Kip Tindell (check out this 2011 CBS Sunday Morning segment about The Container Store and CEO Tindell), who actually diagnosed the problem: “Consistent with so many of our fellow retailers, we are experiencing a retail 'funk'…we continue to experience slight traffic declines in this surprisingly tepid retail environment. While consumers are buying homes and automobiles and even high ticket furniture, most segments of retail are, like us, seeing more challenging sales than we had hoped early in 2014 – so we’re not alone in this."

Investors will be eager to see whether other retailers have felt the pinch. The June Retail Sales report will be released on Tuesday and many economists are keeping a keen eye on the results. Sales have been inching up, but there has yet to be a broad-based, consistent gain among a variety of retailers. Despite the woes at the companies noted above, carmakers have enjoyed big gains and high-end retailers, like Tiffany’s and Burberry Group have been racking up the sales.

One thing is clear: until more Americans feel confident enough in the economy to spend more money, we are likely to see mixed results and sub-par growth. We’ll hear a little more about the nation’s progress this week, when Fed Chair Janet Yellen testifies before the Senate Banking and House Financial Service Committees. After minutes from the central bank’s recent policy meeting revealed that the Fed is planning to wrap up its bond buying program in October, lawmakers are likely to ask when the Fed will begin to raise short term interest rates. Based on the economic projections submitted at the most recent policy meeting, officials expect the first rate hike will occur around the middle of next year.

MARKETS:

• DJIA: 16,943, down 0.7% on week, up 2.2% YTD
• S&P 500: 1967, down 0.9% on week, up 6.5% YTD
• NASDAQ: 4,415, down 1.6% on week, up 5.7% YTD
• 10-Year Treasury yield: 2.52% (from 2.64% a week ago)
• August Crude Oil: $100.83, down 3.1% on week (4^th consecutive weekly loss)
• August Gold: $1337.40, up 1.3% on week (4^th consecutive weekly gain)
• AAA Nat'l average price for gallon of regular Gas: $3.62 (from $3.55 a year ago)

THE WEEK AHEAD: The financial services sector will headline earnings reports in the week ahead. Analysts predict it will be a tough quarter, with revenue declining by 5.6 percent from a year ago and profits down by 10.3 percent. Investors will pay special attention to Citigroup’s report, after it was reported that the bank and the Justice Department were nearing a $7 billion dollar deal to settle a civil investigation into the sale of mortgage investments.

Mon 7/14:

Citigroup, Barclay’s

Tues 7/15:

Goldman Sachs, JP Morgan, Johnson & Johnson, Yahoo, Intel

8:30 Retail Sales

8:30 Empire State Manufacturing Index

8:30 Import/Export Prices

10:00 Business Inventories

10:00 Janet Yellen testifies before Senate Banking Committee

Weds 7/16:

Bank of America, eBay, Yum! Brands

8:30 Producer Price Index

9:15 Industrial Production

10:00 Housing Market Index

10:00 Janet Yellen testifies before House Financial Services Committee

2:00 Fed Beige Book

Thurs 7/17:

Morgan Stanley, Google, Schlumberger

8:30 Weekly Jobless Claims

8:30 Housing Starts

10:00 Philadelphia Fed Survey

GE CEO Mary Barra and general counsel Mike Millikin testify before a Senate subcommittee on why it took so long to recall cars with faulty ignition switches.

Fri 7/18:

General Electric

9:55 Consumer Sentiment