Does Black Friday Matter?

As we prepare for the retail launch of the holiday season, here’s a question worth tackling: Does Black Friday (or Gray Thursday) matter? If you’re the kind of shopper that delights in the adrenaline rush of shopping in the wee hours of the Friday after Thanksgiving, go for it. For the rest of us, it may be better to just enjoy a long weekend. Although you are likely to be barraged by offers, according to the New York Times, “the chances of snatching a great deal for a quality item are slim, largely because Black Friday is mainly designed for retailers to clear out unwanted goods, and because best-selling products rarely drop much in price.” Those warnings are unlikely to deter the throngs--Black Friday is still expected to be the Number One shopping day of the year, despite a drop off in sales estimates over the past two years.

Overall, Americans are expected to increase holiday spending, which includes all of November and December, by 3 to 3.5 percent from a year ago, according to the research firm eMarketer. Warning: don’t pay too much attention to the estimate from the National Retail Federation (NRF), which calls for a 3.6 percent increase in holiday spending in 2016. The NRF’s projections tend to overestimate sales growth because of its shaky methodology, which relies on asking consumers how much they spent last year, and how much they plan on spending this year.

With the election settled and wage growth strengthening, there could be an upside surprise to retail results this holiday season. Regardless of whether sales increase by more or less than expected, the focus will return to the growth of digital. In a report last week, the government said that overall e-commerce jumped 15.7 percent in the third quarter from a year ago, while total retail sales increased 2.2 percent in the same period. Still, most shopping still occurs in physical stores. Last quarter, E-commerce accounted for just 8.4 percent of overall retail sales.

But these numbers are somewhat misleading, because overall retail sales include the big-ticket automobile category, as well as gas and groceries. According to consultancy Strategy&, these groups are responsible for almost half of total retail sales. Without them, online’s penetration of its “addressable market” is closer to 16 percent.

The subset of digital commerce that continues to power sales is mobile. According to Adobe Digital research, in 2016, “mobile will overtake desktop for the first time in terms of driving visits to a website during the holiday season.” But consumers are using their phones more to research than to make purchases.

If you do plan to get busy this week, here are few things to keep in mind:

• Make a list of products you want to buy and start tracking their prices on Google and Amazon and then on PriceGrabber or PriceJumpon savings.com.
• The hottest gifts this season are expected to be VR devices (Oculus, PlayStation VR and HTC Vive), Pokémon, Barbie, Lego, Hot Wheels and Frozen toys, as well as Google Home and Amazon Echo.
• When you log on is important. The Monday before Thanksgiving is good for electronics; if apparel is on your list, the biggest discounts will be highest on Tuesday; and the majority of Walmart’s Black Friday deals, are available to online shoppers starting at 12:01 a.m. on Thursday. Thanksgiving Day is the best day for jewelry purchases.
• Black Friday deals: Cheap electronics, video games, DVDs, and gaming systems. And while it may not exactly be on Santa’s list, Friday may also be a good day to close a deal on a new car, as dealers seek to clear out inventory and boost sales. Cyber Monday can be ideal for toys, which are 13 percent less expensive than they were in October, according to Adobe.
• Don’t be loyal: Despite the ability to find steep discounts, 25 percent of customers will end up paying higher prices because they are loyal to a retailer.
• Download ShopSavvy, before you hit the brick and mortar stores…the app can scan barcodes and compare at other big retailers.
• Check out CNET’s Black Friday Guide, which highlights the best deals at many of the nation’s top retailers and Consumer World’s Black Friday Week Tips for Bagging a Bargain.
• Sobering reminder: The best deals always occur AFTER the holidays.

MARKETS: The post-election selloff in the bond market continued, as investors bet that the Trump administration will boost spending, cut taxes and as a result, spark an increase in inflation. The yield on the benchmark 10-year note closed at a 12-month high and logged the biggest two-week gain in 15 years. The Treasury bond market is on pace for the biggest monthly negative return since December 2009 and the overall bond market has seen the biggest two-week rout in data going back to 1990.

• DJIA: 18,868, up 0.1% on week, up 8.3% YTD
• S&P 500: 2182, up 0.8% on week, up 6.8% YTD
• NASDAQ: 5321, up 1.6% on week, up 6.3% YTD
• Russell 2000: 1315, up 2.6% on week, up 15.8% YTD
• 10-Year Treasury yield: 2.34% (from 2.12% week ago)
• British Pound/USD: 1.2356 (from 1.2593 week ago)
• December Crude: $45.54, up 5.3% on week
• December Gold: $1,208.30, down 1.3% on week, 9-month low
• AAA Nat'l avg. for gallon of reg. gas: $2.15 (from $2.18 wk ago, $2.12 a year ago)

THE WEEK AHEAD:

Mon 11/21:

8:30 Chicago Fed National Activity Index

Tues 11/22:

10:00 Existing Home Sales

Weds 11/23:

8:30 Durable Goods Orders

10:00 New Home Sales

10:00 Consumer Sentiment

2:00 FOMC Minutes

Thursday 11/24: US MARKETS CLOSED THANKSGIVING

Large stores open:

3pm JC Penney

4pm Old Navy (some locations only)

5pm Best Buy, Toys R-Us, Macy’s

6pm Wal-Mart, Sears, Kohl’s, Target

7pm K-Mart

Large Stores Closed:

TJ Maxx, Marshall’s, Staples, Office Depot, BJs, Costco, GameStop, Lowe’s, Nordstrom’s, Neiman Marcus, Christmas Tree Shop

Friday 11/25 BLACK FRIDAY

1:00 Stock Markets close early

Does Plunging Oil Portend Recession?

Crude oil has tumbled 15 percent in the past ten trading session, approaching the summertime low of nearly $40 a barrel. That means it’s time for one of the favorite economic themes of 2015: “Plunging demand for oil is the harbinger of a recession”. As recounted many times in this space, there has indeed been a drop off in activity in China and those emerging markets, which rely on trade with the world’s second largest economy. But surprisingly, as demand for oil has drifted down, supply has increased. That’s not supposed to happen, at least in the econ textbooks. You know how it works: demand weakens, prompting suppliers to cut back and then prices start to climb back up. But around the globe, production levels have remained robust. US, Russia, Saudi Arabia and other Persian Gulf states are keeping the spigots open, creating a glut of oil.

The good news is that gas prices have resumed a downward slide. AAA says that the average price for a gallon of regular gas is $2.18, down from $2.91 a year ago, with prices below $2 in many areas. AAA spokesman Avery Ash said “It looks increasingly likely that drivers will find the cheapest gas prices for both Thanksgiving and Christmas in seven years.”

Lest you think that Americans will use those savings at the pumps and beef up their holiday purchases, don’t bet on it. As gas prices have careened lower this year, there has been little evidence that consumers are spending it freely in the economy. Instead, they have been beefing up their cash reserves or saving for large purchases, like cars.

That parsimonious trend has been bad news for US economists, who have been hoping that our retail instincts would kick in and boost growth in the fourth quarter. It also may worrisome for the nation’s retailer’s, some of whom (Macy’s, Nordstrom) have been struggling, as the all-important holiday season is about to kick off.

But, wait…where’s that holiday optimism? OK, here it is: the last jobs report was really good, the service sector continues to advance and according to the Federal Reserve, “household spending and business fixed investment have been increasing at solid rates in recent months, and the housing sector has improved further.” That sounds pretty decent and not at all like a recession is imminent.

MARKETS: Investors broke a six-week winning streak in stocks, producing the largest percentage losses since the week ended August 21^st.

• DJIA: 17,245 down 3.7% on week, down 3.2% YTD
• S&P 500: 2,023 down 3.6% on week, down 1.7% YTD
• NASDAQ: 4,927 down 4.3% on week, up 4% YTD
• Russell 2000: 1146, down 4.4% on week, down 4.8% YTD
• 10-Year Treasury yield: 2.28% (from 2.32% a week ago)
• Dec Crude: $40.76, down 7.9% on week (biggest weekly loss in 7 months)
• Dec Gold: $1,080.90, down 0.6% on week
• AAA Nat'l avg. for gallon of reg. gas: $2.18 (from $2.22 wk ago, $2.91 a year ago)

THE WEEK AHEAD:

Mon 11/16:

8:30 Empire State Manufacturing

Tues 11/17:

8:30 CPI

9:15 Industrial Production

10:00 Housing Market Index

Weds 11/18:

8:30 Housing Starts

2:00 FOMC Minutes

Weds 11/19:

10:00 Philly Fed

Weds 11/20:

Why are Americans Down?

What’s going on with the American consumer? Most economists thought that the plunge in energy prices would eventually show up in a little extra spending elsewhere in the economy. So far, that has not been the case. Retail sales in April were flat and excluding gasoline, they were up just 0.1 percent from March. People are not spending, because they are not buying that the economic recovery is for real. The University of Michigan’s consumer sentiment index dropped sharply, with respondents’ saying that they are still concerned about losing their jobs. In fact, they reported the highest probability of losing their jobs since 2009. The sour mood coincides with data showing that new jobless claims remain at 15-year lows.

And it’s not just in the U.S., says Capital Economics “consumers in advanced economies [US, euro zone, UK and Japan] have so far opted to save, rather than spend, their oil windfall.” All is not lost, because there is hope that as labor markets strengthen, confidence and spending should follow. Additionally Joel Naroff of Naroff Economic Advisors reminds us that the retail sales report does “not include services, which is two-thirds of spending, so we really cannot count the consumer out just yet.”

In addition to consumer spending, which is expected to spring back in the coming months, hopes are high for continued housing market gains. For much of the recovery, potential first time homebuyers were opting for rentals due to a combination of outstanding student loan debt, difficulty in obtaining mortgages and a generalized fear of owning a home. The later two issues appear to be dissipating (home purchase mortgage applications increased to a two-year high in April), especially as rents rise in many of the cities where young, first time buyers live.

Unfortunately, outstanding student loans could continue to partially impede progress in the housing market. Just in time for college graduation season, the New York Federal Reserve reported that total outstanding student loan debt increased to 1.2 trillion in the first quarter, up $78 billion from a year ago. Additionally, the college class of 2015 holds a dubious distinction: its graduates are the most indebted ever. The average graduate, with a student-loan, owes just over $35,000, according to Edvisors. Adjusted for inflation, that’s more than double the amount borrowers had two decades ago.

MARKETS: Consumer confidence may be down, but that hasn't stopped investors from pushing up stocks at or near record levels.

• DJIA: 18,272, up 0.5% on week, up 2.5% YTD (16 points from all-time high)
• S&P 500: 2122, up 0.3% on week, up 3.1% YTD (8th record close of the year)
• NASDAQ: 5,048 down 0.9% on week, up 6.6% YTD
• Russell 2000: 1244, up 0.7% on week, up 3.3% YTD
• 10-Year Treasury yield: 2.14% (from 2.15% a week ago)
• June Crude: $59.96, up 0.5% on week
• June Gold: $1225.30, up 3.1% on week
• AAA Nat'l avg. for gallon of reg. gas: $2.70 (from $2.66 wk ago, $3.65 a year ago)

THE WEEK AHEAD: Traders are eagerly awaiting a long weekend-most will focus on minutes from the last Fed policy meeting and earnings reports from some of the nation’s largest retailers.

Mon 5/18:

Urban Outfitters

10:00 Housing Market Index

Tues 5/19:

Home Depot, TJX, Wal-Mart

8:30 Housing Starts

Weds 5/20:

Lowes, Sears, Staples, Target

2:00 FOMC Minutes

Thurs 5/21:

Aeropostale, Best Buy, Dollar Tree, Gap

10:00 Philly Fed

10:00 Existing Home Sales

Fri 5/22:

Ann Taylor, Foot Locker

8:30 Consumer Price Index

Will OPEC Decision Halt the Santa Claus Rally?

While you were enjoying your Thanksgiving meal, the 12 members of the Organization of the Petroleum Exporting Countries (OPEC) announced that the cartel would hold its output target at 30 million barrels per day. The decision caused a steep sell off in Brent crude oil (the global benchmark) on the ICE Futures Europe. When U.S. markets opened on Friday, investors dumped West Texas Intermediate crude on the New York Mercantile Exchange and futures plunged 10.2 percent to $66.15 a barrel, the lowest settlement since September 2009. Both oil benchmarks are experiencing their worst losing streaks since the financial crisis in 2008, with 18 percent losses for the month of November. As previously mentioned in this space (Peak Oil Pukes), sinking oil and gas prices should help consumers, but the savings has not yet created overall cheer. Last week, the Conference Board said that its consumer confidence index dropped to a four month low in November. But Capital Economics notes “this fall needs to be taken into context alongside the sharp rise earlier in the year.” In fact, confidence is still close to seven-year highs.

What has been driving confidence this year has been the steady improvement in the jobs situation. Through October, the economy has added 2.225 million private sector jobs and 2.285 million total jobs in 2014. The November jobs report, which is due this Friday, is expected to show that the economy added 220,000 jobs. If that happens, 2014 will be the best year for private employment since 1999, according to Calculated Risk.

The unemployment rate is expected to remain at 5.8 percent, which puts it close to the Federal Reserve’s estimate of the longer-term, normal rate of unemployment of 5.2 percent to 5.5 percent. But with wages still up only 2 percent year over year, the central bank is likely to keep interest rates at 0 to 0.25 percent until next year.

Despite lots of energy and attention, the initial reports from retailers about the big holiday weekend may tell us less about the economy than the jobs report. Analysis from the New York Times found that while the holiday season is important for retailers, it “matters only a little bit” for the overall economy. The reason is clear: consumers would spend a certain amount of money in any two months. When stripping out the normal expenditures, “for the last two months of the year, Americans are on track to spend $106 billion more than they would if these were any old months.” Not that you would sneeze at $106 billion, but compared to the $17.6 trillion US economy, it’s not nearly as important as the elusive 3 percent increase in wages that we have seen in previous expansions.

MARKETS: Will investors be treated to a “Santa Claus Rally”? The old Wall Street chestnut predicts stocks do well during the period just after Thanksgiving through the end of the year. Over the past five years, the S&P 500 has gained an average of 2.5 percent during December. But OPEC's decision to maintain current production levels could weigh on energy stock prices, curtail energy company profits and limit the near-term upside in markets.

• DJIA: 17,828, up 0.1% on week, up 2.5% on month, up 7.6% YTD
• S&P 500: 2067, up 0.2% on week, up 2.5% on month, up 11.9% YTD
• NASDAQ: 4791, up 1.7% on week, up 3.5% on month, up 14.7% YTD
• Russell 2000: 1173, up 0.01% on week, up 2% on month, up 0.8% YTD
• 10-Year Treasury yield: 2.17% (from 2.31% a week ago)
• January Crude Oil: $66.15, down 13.5% on the week, down 18% on month
• December Gold: $1175.50, down 1.8% on the week
• AAA Nat'l average price for gallon of regular Gas: $2.78 (from $3.28 a year ago)

 THE WEEK AHEAD:

Mon 12/1:

Cyber Monday

9:45 PMI Manufacturing

10:00 ISM Manufacturing

Tues 12/2:

Motor Vehicle Sales (2014 is on pace to be the best year since 2006)

10:00 Construction Spending

Weds 12/3:

8:15 ADP Private Sector Employment Report

8:30 Productivity

10:00 ISM Non Manufacturing

2:00 Fed Beige Book

Thurs 12/4:

8:30 Weekly Jobless Claims

Fri 12/5:

8:30 November Employment Report

10:00 Factory Orders

3:00 Consumer Credit

Holiday Sales Season 2014 Kicks Off

American consumers: start your engines! This weekend kicks off the holiday shopping season and with just 33 days to go before Christmas, retailers and economists alike have visions of sugarplums dancing in their heads. Back in October, the National Retail Foundation predicted holiday sales in November and December (excluding autos, gas and restaurant sales) would increase 4.1 percent to $616.9 billion, a full percentage point higher than 2013’s actual 3.1 percent increase during that same time frame and above the 2.9 percent growth over the past 10 years.

Other estimates have been similarly upbeat. Deloitte’s annual holiday forecast suggests sales will increase 4 to 4.5 percent, boosted by a 13 percent increase in consumer spending across all categories to $1,299 this holiday season. Analysts at Morgan Stanley believe that it will be a jolly holiday season, helped by an increase in personal income and wilder availability of credit. And research from Capital Economics shows that with employment rising and a fall in gas prices boosting real incomes, “this holiday shopping season could be the best in nine years”.

Regardless of the actual results, what is clear is that the nature of the holiday season is changing. NRF notes that holiday sales represent approximately 19.2 percent of the industry’s annual sales of $3.2 trillion, but for some retailers, the two-month season can account for almost 40 percent of total annual revenues. Perhaps that is why so many big names have extended the season by opening on Thanksgiving Day and even earlier - Wal-Mart started its holiday promotions last Friday!

With a full week to shop, the influence of Black Friday and Cyber Monday are expected to wane. That said, digital is where the growth lies. Shop.org expects 2014 online holiday sales to increase between 8 and 11 percent over last holiday season to as much as $105 billion. But that’s not the whole story: Deloite found that 50 percent of in-store retail sales, or $345 billion, will be influenced by digital interactions this holiday season.

For those inclined to get a jump on shopping, research from Adobe Digital has found that online prices will hit rock bottom on Thanksgiving Day, where consumers will see an average discount of 24 percent. (The average item will be 20 percent off during Thanksgiving week; prices will increase the Tuesday after Cyber Monday.) The second best day to shop online is the Monday before Thanksgiving.

Finally, despite the pain of the past credit bubble bursting, Americans are still willing to go into hock during the holiday season. According to a survey commissioned by NerdWallet and conducted by Harris Poll, families with household incomes between $50,000 and $75,000 will take an average of 2.6 months to pay off holiday debt, whereas families with household incomes below $50,000 will take an average of 2 months.

MARKETS: Stocks reached a milestone last week: For the first time since the dotcom bubble (14 years), the S&P 500 hit a new all-time, inflation-adjusted high.

• DJIA: 17,810, up 1% on week, up 7.4% YTD
• S&P 500: 2063, up 1.2% on week, up 11.6% YTD (45^th record close of 2014)
• NASDAQ: 4712, up 0.5% on week, up 12.8% YTD
• Russell 2000: 1172, flat on week, up 0.9% YTD
• 10-Year Treasury yield: 2.31% (from 2.31% a week ago)
• January Crude Oil: $76.51, up 0.9% on the week (snaps a seven-week losing streak)
• December Gold: $1197.70, up 1% on the week
• AAA Nat'l average price for gallon of regular Gas: $2.83 (from $3.24 a year ago; AAA projects 46.3 million Americans will travel 50 miles or more from home during the Thanksgiving weekend, the highest volume since 2007 and a 4.2 percent increase over 2013. Almost 90 percent will celebrate the holiday with a road trip.)

THE WEEK AHEAD: Despite the Thanksgiving holiday, it will be a big week for economic data.

Mon 11/24:

8:30 Chicago Fed National Activity Index

10:30 Dallas Fed Manufacturing Survey

Tues 11/25:

8:30 Q3 GDP – 2^nd Estimate (Initial reading: +3.5%)

9:00 Case-Schiller Home Price Index

10:00 Consumer Confidence

Weds 11/26:

8:30 Weekly Claims

8:30 Durable Goods Orders

8:30 Personal Income and Spending

9:55 Consumer Sentiment

10:00 New Home Sales

Thurs 11/28: Thanksgiving Day: ALL US Markets closed

The OPEC oil cartel meets in Vienna: Most experts say that even if the group were to agree on an export cut, it is unlikely to have a meaningful effect on prices, due to increased production by non-members

Fri 11/29: Black Friday

1:00 US markets close early

The Michael Corleone Economy

Over the past month, the news cycle has been, in a word, dreadful. Meanwhile, the economy, the markets and the financial world in general, have been fairly quiet. Oh sure there was a flurry of downside summer selling in stocks, mostly due to geopolitical jitters, but a four percent move lower is not exactly a classic 10 percent correction. But like Michael Corleone in The Godfather III who famously said, “Just when I thought I was out...they pull me back in”, every time the economy appears to be gaining steam, something pulls it back. After a rough winter, there were three strong months of job creation, followed by a decent, not great reading in July. The ISM Manufacturing Index rose to a three-year high in July and the service index reached its highest level in eight years; but then last week, the July reading of retail sales was flat. (The once-indomitable American consumer has yet to rediscover his love for shopping on a consistent basis, which is acting as a headwind to economic progress.)

This week, the drag may come in the form of housing, which has yet to recover from the early-year severe winter weather. Despite an improving economy, still-relatively low mortgage rates, an easing of credit conditions and a slowdown in price increases, the housing market remains subdued. Economists believe that housing’s extended hibernation will draw to a close this summer, but the real estate data have been inconsistent at best.

The problem with disappointing economic reports is they raise concerns that third quarter growth will slow down from the brisk four percent annualized pace seen in the second quarter. But in the topsy-turvy, post-financial crisis world, the periodic backwards slides in economic progress can actually be good news for investors. The reason is that every time a “bad” report hits the wires, investors are reminded that the Federal Reserve is likely to keep short-term interest rates low for a “considerable” period of time. To wit, after the weaker than expected US retail sales report and a myriad of punk data from Europe, Japan and China, government bond yields in the U.S., Germany and the U.K. closed at their lowest levels of the year, as investors bet that major central banks will keep interest rates lower for longer to support economic growth. (The yield of the 10-year Treasury note dropped below 2.4 percent, the lowest level in a year.)

Low short and long-term interest rates cannot continue forever, because at some point, the economy will shift into a higher gear and the Fed will need to change its policy. Fed-watchers are hoping that this year’s three-day conference in Jackson, Wyoming, which begins on Thursday, might provide clues as to when that change could occur.

When Fed Chair Janet Yellen delivers the keynote on the topic of “Re-evaluating Labor Market Dynamics,” many expect her to reiterate that there is slack in the labor market and that inflation is not yet a problem. However, the analysts at Capital Economics predict “the combination of faster income growth, rising wealth and easier access to credit should support spending over the rest of the year. As such, the economy will still be much stronger in the second half of the year than in the first.”

If those forecasts come to fruition, we may finally escape the “Michael Corleone economy”. But there is a downside to the rosy outlook: a stronger economic showing would mean that the Fed would likely raise interest rates sooner than expected -- probably in the first quarter of 2015. Additionally, the central bank could also increase rates by more than is widely anticipated. If that’s the case, the good news for the economy could spell trouble for investors, who may be underestimating the timing and magnitude of interest rate increases.

MARKETS: The Dow crawled back into positive territory for the year and the S&P 500 is within two percent of its all-time high of 1991, reached on July 24^th.

• DJIA: 16,662, up 0.7% on week, up 0.5% YTD
• S&P 500: 1955, up 1.2% on week, up 5.8% YTD
• NASDAQ: 4464, up 2.2% on week, up 6.9% YTD
• 10-Year Treasury yield: 2.34% (from 2.42% a week ago) 52-week low in yield
• September Crude Oil: $97.24
• December Gold: $1305.50
• AAA Nat'l average price for gallon of regular Gas: $3.46 (from $3.54 a year ago)

THE WEEK AHEAD:

Mon 8/18:

10:00 Housing Market Index

Tues 8/19:

8:30 CPI

8:30 Housing Starts

Weds 8/20:

2:00 FOMC Minutes

Thurs 8/21:

Federal Reserve 3-day conference begins in Jackson Hole, WY

8:30 Weekly Jobless Claims

10:00 Philadelphia Fed Index

10:00 Existing Home Sales

10:00 Leading Indicators

Fri 8/22:

Fed Chair Janet Yellen delivers the keynote address at Jackson Hole Fed conference

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

Retail Therapy

Consumer spending grew steadily during the first three-months of the year, but the increase was mostly due to higher heating bills and medical expenses. Things improved towards the end of the quarter, with a brisk increase in March retail sales, but many economists attributed the surge to pent-up demand after the winter’s chill and a big uptick in auto sales. This week, we will learn whether Americans were willing to spend money in the stores during a mostly normal month. Analysts are hopeful that April Retail Sales will show moderate progress, on the heels of improving sentiment. In advance of the report, there were a number of retail milestones last week that beg the age-old question: With sales sinking and stores closing, can brick and mortar retailers adapt their business models to survive? Last week, Office Depot and Sears announced that they would close stores; and in addition to the massive security data breach, Target’s CEO Greg Steinhafel lost his job in part because foot traffic was down and the company continues to lose business to online competition.

Although sales in physical stores still account for over 90 percent of overall retail sales activity, research shows that growth of online sales will skyrocket in the future. Just consider that a third of consumers Forrester surveyed early last year said they use their smartphones to research and compare prices in-store, and many expect to use their phone for price research even more in the future. Or how about this neat factoid from the New Yorker’s Amy Merrick: “Five years ago, Macy’s revenue was around $23 billion, while Amazon’s revenue was about $24 billion. Last year, Macy’s had nearly $28 billion dollars in revenue; Amazon had more than $74 billion.”

All may not be lost! Some brick and mortar companies have made big investments online and it appears to be paying off. For the first time in 10 years, Wal-Mart’s online sales growth surpassed Amazon’s last year (30 percent vs. 20 percent). Of course Amazon still holds a huge advantage: Amazon's online sales of $67.8 billion dwarfs Wal-Mart's $10 billion and last year, Amazon sold more than its next 10 biggest competitors combined. That said, Wal-Mart and other forward thinking retailers have jumped into the fray, which should eventually put pressure on the e-commerce giants. Wal-Mart, along with Macy's, Nordstrom and Kohl's will report earnings this week.

One more retail milestone: Chinese-based Internet marketplace Alibaba, which has been described as e-Bay, Amazon and PayPal combined, announced its US initial public offering, which could be the largest Internet IPO since Facebook. Alibaba has grown into the largest e-commerce company in the world’s most populous country, with a reported transaction volume that’s triple the size of eBay, and more than double the size of Amazon.com.

MARKETS:

• DJIA: 16,583, up 0.4% on week, up 0.04% YTD
• S&P 500: 1878, down 0.1% on week, up 1.6% YTD
• NASDAQ: 4,071, down 1.3% on week, down 2.5% YTD
• 10-Year Treasury yield: 2.59% (from 2.59% a week ago)
• June Crude Oil: $99.99, up 0.2% on week
• June Gold: $1302.90, down 1.2% on week
• AAA Nat'l average price for gallon of regular Gas: $3.66 (from $3.56 a year ago)

THE WEEK AHEAD:

Mon 5/12:

2:00 Federal Budget

Tues 5/13:

7: 30 NFIB Small Business Optimism Index

8:30 Retail Sales

8:30 Import/Export Prices

10:00 Business Inventories

11:00 Q1 2014 Quarterly Report on Household Debt and Credit

Weds 5/14:

Macy's, Deere, Cisco Systems

8:30 Producer Price Index

Thurs 5/15:

Nordstrom, Kohl's, Wal-Mart Stores

8:30 Weekly Jobless Claims

8:30 Consumer Price Index

8:30 Empire State Manufacturing

9:15 Industrial Production

10:00 NAHB Housing Market Index

10:00 Philadelphia Fed Survey

Janet Yellen Speech: “Small Businesses and the Economy”, National Small Biz Week 2014

Fri 5/16:

8:30 Housing Starts

9:55 University of Michigan consumer-sentiment index

10:00 April Regional and State Employment and Unemployment

Week Ahead: Labor Market Has Work to Do

The US economy created far fewer jobs than expected in December – just 74,000, the smallest number since January 2011. The unemployment rate dropped to 6.7 percent, the lowest since October 2008, but the rate went down for the wrong reason - it was largely due to 347,000 would-be workers leaving the labor force. That pushed down the participation rate (the number of people actively looking for a job or employed) to a 35-year low of 62.8 percent. (As a point of reference, the participation was about 66-67 percent over the last 20 years. A large portion of the drop (as much as one-half to two-thirds) is attributable to demographics, i.e. Baby Boomers retiring). Considering that analysts were predicting 200,000 jobs created and that the participation would increase, you are not alone in asking, “What happened?”

Some economists noted that the big miss was due to unseasonably severe winter weather last month. The Bureau of Labor Statistics attempts to adjust its findings for seasonal factors. But since more snow fell than in a normal December, the adjustment may have lagged reality. The government’s household survey showed that 273,000 people reported not being able to work because of the weather in December, that’s well above the long-term average of 166,000 for the final month of each year. The folks at Capital Economics said, “It’s even possible that some people who couldn’t get to work were incorrectly recorded as unemployed rather than employed.”

Doubters contend that bad weather should not matter, because the government still counts workers as employed as long as they were paid for one day in the sample period, regardless of whether they turned up. Hard to say, but eyeballing the 16,000 decline in construction and the drop in average weekly hours worked, chances are that bad weather played some role. If that’s the case, then the next few months should show a pickup, as the chill from the Polar Vortex (and all other unnamed weather patterns) pass.

For now, the labor market still has work to do…

Now that the jobs report is behind us, it’s time for earnings season! Fourth quarter earnings for all S&P 500 companies are expected to rise by 6.1 percent, according to FactSet, compared to a 5.1 percent increase in the third quarter. Earnings estimates are down since September 30^th, with the energy sector seeing the largest cut. It’s the financial sector that is expected to lead the way, with earnings expected to rise by over 20 percent.

On the economic calendar, December retail sales will provide a closer look at the holiday shopping season. Last week, ShopperTrak said that sales were up 2.7 percent from a year ago in brick-and-mortar stores, despite a steep drop in traffic, which fell 14.6 percent. Separately, low-end retailers Dollar Stores and Sears reported that their customers continue to struggle economically and as a result; the holiday season was a bust.

MARKETS:

• DJIA: 16,437, down 0.2% on week, down 0.8% YTD
• S&P 500: 1842, up 0.6% on week, down 0.3% YTD
• NASDAQ: 4174, up 1% on week, down 0.05% YTD
• 10-Year Treasury yield: 2.86% (from 2.99% a week ago)
• Feb Crude Oil: $92.72
• Feb Gold: $1246.90
• AAA Nat'l average price for gallon of regular Gas: $3.31 (from $3.31 a year ago)

THE WEEK AHEAD:

Mon 1/13:

Tues 1/14:

JPMorgan Chase, Wells Fargo

8:30 Retail Sales

8:30 Import/Export Prices

10:00 Business Inventories

Weds 1/15:

Bank of America

8:30 PPI

8:30 Empire State Manufacturing

2:00 Fed Beige Book

Thurs 1/16:

American Express, Citigroup, Goldman Sachs, Intel

8:30 Weekly Jobless Claims

8:30 CPI

10:00 Philadelphia Fed

Fri 1/17:

GE, Morgan Stanley

8:30 Housing Starts

9:15 Industrial Production

9:55 Consumer Sentiment

10:00 Job Openings and Labor Turnover Survey (JOLTS)

Image by www.lendingmemo.com

Week ahead: Black Friday OUT; Terrific Thursday IN

Consumers surprised economists by shrugging off the government shutdown and hitting the stores with gusto in October. Now the question is whether they will continue to open their wallets for the all-important holiday season. The NRF (formerly known as the National Retail Federation) predicts that holiday sales will rise 3.9 percent, a touch higher than the 3.5 percent growth seen last year. Because NRF is a trade group, many analysts discount the optimism. Scrooge alert: Economists at IHS Global Insight and Morgan Stanley believe that 2013 could be the weakest holiday season since 2008 and considering that holiday sales can make up one-fifth or more of annual sales, that would be bad news for the entire industry.

Retailers themselves are all over the map - Macy’s and TJX, the parent of TJ Maxx, HomeGoods and Marshalls, anticipate a solid quarter, while Best Buy and Wal-Mart are not so sure. One thing is clear: there will be fierce competition for consumers’ hard-earned dollars this holiday season, which due to a quirk in the calendar, is six days shorter than usual.

Retailers are offering holiday deals and layaway offers earlier than last year, hoping that this year’s trend of consumers spending on large ticket items, will spread across other categories, like clothing, toys and general merchandise. And by now, the idea of “Black Friday” seems positively passé, with Wal-Mart, KMart and Best Buy opening at 6pm on Thanksgiving Day; and Target, Sears, Macy’s, JC Penney and Kohl’s opening at 8pm. “Terrific Thursday” doesn’t have the same ring as “Black Friday”, but you get the gist – despite everyone complaining that it is sacrilege to open on Thanksgiving Day, consumers are rewarding retailers for rescuing them from those turkey-induced L-Tryptophan highs.

For those who don’t partake in the sport of fighting crowds in the physical stores, don’t worry -- the brick and mortar retailers have fully embraced their online competitors to provide shoppers with ample opportunity to escape their families without leaving their homes.

And a final bit of good news for the 38.9 million road warriors out there, who AAA expects will travel by car this week: gas prices are about $0.20 cheaper than they were a year ago.

MARKETS: Milestones abound! The Dow and S&P 500 closed above big, round numbers last week (16,000 and 1800), as stocks enter the final stretch of the year with tailwinds.

• DJIA: 16,064, up 0.7% on week, up 22.6% on year (7^th straight week of gains)
• S&P 500: 1804, up 0.4% on week, up 26.6% on year (on pace for its biggest annual gain since 1998, when it climbed 31%)
• NASDAQ: 3991, up 0.1% on week, up 32.2% on year
• 10-Year Treasury yield: 2.75% (from 2.71% a week ago; Treasurys have lost 2% on a total-return basis this year)
• Dec Crude Oil: $94.84, up 1.1% on week
• Feb Gold: $1244.60, down 3.4% on week
• AAA Nat'l average price for gallon of regular Gas: $3.26

THE WEEK AHEAD:

Mon 11/25:

10:00 Pending Home Sales Index

NY bankruptcy court considers merger of American Airlines and US Airways

Tues 11/26:

8:30 Housing Starts

9:00 FHFA House Price Index

9:00 Case-Shiller Home Price Index

10:00 Consumer Confidence

Weds 11/27:

8:30 Durable Goods Orders

8:30 Jobless Claims

9:45 Chicago Purchasing Managers Index

9:55 Consumer Sentiment

10:00 Leading Indicators

Thurs 11/28: US MARKETS CLOSED FOR THANKSGIVING

Fri 11/29: BLACK FRIDAY

1:00 US Markets close early