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Consumer Spending Won't Improve Stocks

Consumer Spending

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After a major disappointment last month, the consumer spending news this morning was a very mild positive surprise. Consumer spending measures the total value of inflation-adjusted expenditures by U.S. consumers in a given month. In this case, the report is for May's spending and showed a small .2% increase since the prior month. The last report showed no increase, which was a major surprise to investors and the market tanked. Should we expect that today's report will lead to a big rally?

Probably not. The general rule of thumb is that when the VIX is as high as it is - good news will be supportive but not bullish and bad news will be very bearish and can lead to big declines. The futures market didn't respond positively to the news before the market opened and we can already see a drift to the downside on the major market indexes. The news may help stall a support break on the S&P 500 at $1,050 but it is not likely to drive prices up.

Consumer spending is one of the three major factors we are watching to act as a catalyst for additional declines in stocks or for a potential recovery. The other two are housing and labor. The housing data we have seen recently is very poor and the important labor reports aren't due until Wednesday and Friday of this week. We expect that traders are likely to keep the market fairly flat until we get that additional data this week. Once again we would expect that positive news will be supportive but not bullish and unexpectedly high job losses could definitely lead to a strong support break.

On a very short term basis we might expect retail stocks to bounce slightly in the short term. For example, after Friday's sell off on Wal-Mart ( WMT ) we would not be surprised to see some investors pick up the stock and drive prices up over the next day or two on bargain hunting pressure. However, we should resist drawing too many conclusions about the retail sector from consumer spending numbers. The data is not as important as the retail sales reports we have already seen (poor) and earnings reports that start in July, which are expected to be poor. Those will have a much larger impact on the industry in general.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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