Friday, April 12, 2013

The recent bet on US retail could be premature

Among the bets that may end up backfiring later this year is the recent bet by investors on US retail shares. Just this year the S&P Retail Index has outperformed the S&P500 by nearly 6%.

Source: Ycharts (click to enlarge)

With the current improvements in the labor and housing markets, investors have piled into retail-focused companies. However, today's retail sales surprise to the downside (see chart on Twitter) points to potential weakness in the retail sector. This was followed by another consumer-related surprise - the UMichigan Consumer Sentiment, which came in materially below expectations.

Source: Econoday
MarketWatch: - The University of Michigan-Thomson Reuters consumer-sentiment gauge dropped to a preliminary April reading of 72.3 -- the lowest result since July -- from a final March reading of 78.6, reports said Friday. Economists polled by MarketWatch had expected a preliminary April reading of 79.3. However, consumers have faced negative news on jobs and federal spending.
With the consumer being such a large part of the economy, these results point to potentially sluggish growth in the US. It is possible that the seasonal pattern (discussed here) of US economic activity could be repeating itself.
Reuters: - The data supports the view that the U.S. economy continues to struggle and hasn't performed as well as analysts believed just a few weeks ago. Many analysts cut their growth forecasts for the first quarter.
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