Tuesday, May 13, 2014 The weaker-than-expected retail sales reading provides a soft backdrop for today's trading action, likely making it difficult for the market to build on the strong gains from the day before. Stocks rallied Monday, with the large-cap indexes making new record highs and even the small-caps enthusiastically participating in the move. The weak Retail Sales data for April this morning runs counter to the broadly improving trend in all economic data that has been pointing towards the U.S. economy on its way to shaking off the forces that held it down in the first quarter of the year. Retail Sales are important as they serve as a proxy for the all-important consumer spending component of the economy. Consumer spending held up fairly well in the flat-lined Q1 GDP report, but the strength was largely due to non-discretionary type spending on utilities and healthcare - spending on merchandize and durable goods took a hit in Q1. Today's report was expected to clarify the picture and assure us of an April rebound on the merchandize and durables side, but we didn't see that. The saving grace of today's report is that the March numbers were revised down, which means that the Q1 GDP growth number will not go into negative territory as many had begun to expect in recent days. This report will have some dampening effect on some of the more aggressively optimistic GDP growth estimates for the current period. The retail sector is in focus this week on the earnings front as well, with Wal-Mart ( WMT ), Macy's ( M ), Nordstrom ( JWN ) and others coming out with Q1 results this week. Results thus far have been on the weak side, with only 36% of the retailers beating EPS expectations.
Same-store sales improved markedly in April, with pent-up demand following Q1's harsh weather and the Easter shift benefiting the numbers. While the gains were notably strong for the drug-store chains, The Gap's ( GPS ) momentum indicates that the April surge benefited many others as well.
Director of Research
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