Tuesday, January 15, 2013
A strong retail sales reading, weak economic growth in Germany,
and reassuring words out of Ben Bernanke Monday evening provide
the backdrop for today's trading action. But the market's mood is
expected to be tentative ahead of big bank earnings reports the
rest of this week and rising rhetoric about the debt ceiling
issue.
The December Retail Sales data this morning came in better than
expected, which confirms what consumer confidence data had
already been indicating - that the 'Fiscal Cliff' debate that
month didn't have any negative effect on household spending
during the holidays. Both the 'headline' and the ex-autos growth
pace came in better than expected, while the prior month's
ex-autos growth number was revised a shade lower.
Retail Sales serve as a proxy for consumer spending, which is
the mainstay of the U.S. economy. While consumer spending has
held up decently in recent quarters, the concern is that the end
of the payroll tax relief as a result of the partial 'Fiscal
Cliff' resolution will bring down spending levels this year. The
fourth quarter GDP report coming out later this month is expected
to show the U.S. economy expanding at less than half of the third
quarter's +3.1% pace. Today's Retail Sales report should provide
some comfort on that front. Elsewhere on the economic front, the
New York Fed's Empire State index for January remained in the
negative territory, indicating that the factory sector still
remains problematic.
While U.S. economic growth has been lackluster, the situation
across the pond has been outright ugly. Today's report shows that
even Germany, the Euro-zone's strongest economy, endured negative
economic growth in the final quarter of 2012. The German GDP
contraction in the fourth quarter was expected, but the extent of
the contraction was not.
The German economy contracted at roughly double the pace of
what consensus was expecting. Many in the market do not expect
the German economy to remain in the negative territory for long,
with consensus estimates for the first quarter of 2013 showing
positive GDP growth. But the worrying part about Germany is that
business confidence remains low, which is weighing on business
investments. In fact, it was weak business spending that produced
the negative GDP read in the fourth quarter, offsetting positive
trade and spending by consumers and the government. The concern
is that Germany may not be able to stay immune from the weak
economic forces swirling all around
them.
In corporate news, we have a solid earnings beat from homebuilder
Lennar
(
LEN
), while
Forest Labs
(
FRX
) came short of expectations. The market will likely be not much
enthusiastic about the guidance that came out
Lululemon Athletica
(
LULU
), the yoga pants maker, after the close on Monday.
Sheraz Mian
Director of Research
FOREST LABS A (FRX): Free Stock Analysis
Report
LENNAR CORP -A (LEN): Free Stock Analysis
Report
LULULEMON ATHLT (LULU): Free Stock Analysis
Report
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