Wednesday, May 13, 2015
A mixed U.S. Retail Sales reading and a positive-looking GDP report out of Europe provide the backdrop for today's session, with pre-open sentiment indicating a modestly positive start.
The April Retail Sales report came short of estimates, though the positive revision to the prior-month's growth is modestly reassuring. The 'headline' number was flat, though the growth pace excluding gasoline and automobiles does show the desired directional improvement, albeit below what was expected.
We had a good report last month, which became even better after the revisions today. But overall we have been experiencing a lackluster Retail Sales run this year, which remains quite a head scratcher given the energy windfall that has strengthened consumers' wallets. Last Friday's jobs reading raised hopes that normal economic growth would resume in the current period following the sub-par Q1 performance, but today's reading will likely temper some of those expectations. This will have a bearing on market expectations of Fed policy and could halt the recent uptrend in treasury bond yields.
Unlike the recent run of mixed U.S. data, economic reports from Europe have lately been fairly reassuring, likely indicating that the European Central Bank's aggressive monetary easing policy may have started to show up in underlying economic fundamentals. This morning's Q1 GDP growth numbers were the highest in almost two years, even though the headline growth pace was marginally below estimates. At the individual country level, the growth pace came in better than expected for France and Italy, the two laggards of the region thus far.
The lack of a pronounced bounce in the monthly Retail Sales numbers notwithstanding, the Q1 earnings performance from the Retail sector has been surprisingly positive. The Macy's ( M ) this morning is an exception to the trend that we have been seeing this reporting cycle from retailers, with results broadly coming in better than pre-season expectations. Plenty of retailers are still to come out with Q1 results, but the 23 retailers in the S&P 500 index (out of the 41 total) that have already reported results are tracking better than what we have seen from the same group of companies in other recent periods.
Total earnings for these 23 retailers are up +6.9% from the same period last year, on +11.2% higher revenues, with 87% beating EPS estimates and 52.2% coming ahead of top-line expectations. Relative to other recent periods, earnings and revenue growth rates are tracking better and a higher proportion of retailers are beating estimates. The sector's earnings beat ratio is currently the highest of all 16 sectors and its revenue beat ratio is the second highest (second only to Medical).
Director of Research
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