Janet Yellen's reassuring comments on Thursday helped stocks
reach new highs offsetting the underwhelming
) release that painted a less than inspiring consumer spending
picture this holiday shopping season. Given this stock market
momentum, there is no reason to think that the market will
respond any differently to this morning's weaker than expected
Empire State manufacturing survey.
Consumer spending growth decelerated in the third quarter, with
personal consumption expenditures up only +1.5% in Q3, down from
Q2's +1.8% growth pace. In a low-growth consumer spending
environment, retailer have to rely on promotional efforts to grab
more consumer dollars. But this zero-sum drive for market share
where one company's gain is another's loss typically drives down
margins for everyone.
Looked at this way, Wal-Mart's sub-par outlook isn't solely a
function of under-pressured household finances, but also
reflective of a hyper competitive retail environment where some
) are more than willing to sacrifice margins for more sales.
Wal-Mart referred to this competitive dynamic in their earnings
call, which apparently more than offset the beneficial effects of
recent downtrend in gasoline prices.
Next week's October Retail Sales data will give us a good
sense of retail sales momentum at the start of Q4. But
irrespective of how the numbers turn out, the market will likely
remain happy as long as it assured of continued Fed support.
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