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Mish Schneider If You Give It, They Will Spend

Retail sales came in at 1.9% for September, beating the estimates of a 0.7% gain.

The University of Michigan Sentiment (consumer sentiment) rose to 81.2% versus the 80.5% estimate.
September retail sales gains were broad-based and driven by increases in discretionary categories (clothing, department stores), which will validate expectations for a huge rebound in GDP growth in the third quarter. 

Earlier in the week, the U.S. banking sector showed strong earnings (JP Morgan, Morgan Stanley, Goldman Sachs) which served as an early indication of what we saw here in retail sales for September. One reason the banks reported well for the 3rd quarter was because they reduced the amount of money they put aside in reserves for loan defaults. Banks are expecting more seasonal jobs to help the employment numbers and a slight rebound in GDP.

I know I did my part in adding to the retail sales gains. And if I can assume I am typical, then after a scary spring, a so-so summer, folks like me were itching to spend money.

Besides, one takeaway from the improved numbers is that if you “build it, they will come,” or in other words, if you give them free money, they will spend it. With the retail therapy itch now scratched, what happens in the fourth quarter and the holiday season is key. Not just for the retail sector, but for banks as well.

And that will of course depend a lot on more stimulus money coming in, which is still in question. Plus, most will be watching who wins the election, not to mention what happens with the virus.

That makes for a remarkably interesting convergence of events.

 

Where next?

Not only is the presidential election up for grabs, but even more important than that, the US Senate is up for grabs.

Since all will be known by early November, the holiday season can either turn out merry or humbug. Perhaps this year’s version of A Christmas Carol, would be more aptly portrayed by the ghost of shopping season’s past, present and future!

On that note, the shopping season in the U.S. used to begin with Black Friday, or the day after Thanksgiving. However, stores like Walmart are breaking up Black Friday into three different sales events by staggering them through the month of November.

That makes it possible that sales volume will be lower, not only at the start of November, but also if the election brings any major surprises, with the most insidious one a contested election. Then, the stores could have huge disappointments for their sales numbers.
Also interesting to note, is that a survey conducted by Accenture, shows that Americans plan to spend about $100 less than they did a year ago.

No wonder then that many stores like Target, Best Buy and Amazon Prime Day are already encouraging customers to start their holiday shopping earlier than usual! With all these bubbles floating around, consumers might decide to hunker down this winter.
On the technical side, the retail ETF XRT made yet another new all-time high early Friday and is really the catalyst for the whole market rally since the September correction. However, the ‘buy the expectation’, ‘sell the reality’ adage seems to have manifested, with the market up and after the new highs early on, XRT turned red.

 

Bio

Michele 'Mish' Schneider currently serves as Managing Director of the Marketgauge Group. She writes and produces daily market analysis in "Mish's Daily", and serves as a developer and trading mentor in several of our trading services, drawing on her 30+ Years of Trading and Teaching Experience. Mish also wrote the best-selling finance book, Plant Your Money Tree; A Guide To Growing Your Wealth.

Mish is a former floor trader on several New York Commodity Exchanges, including Coffee, Sugar and Cocoa, NYMEX and FINEX in NYC. While on the trading floor Mish also served as a market analyst for two of the largest commodity trading firms at the time - Continental Grain, and Conti-Commodities.

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