We’re halfway through the month of May but have certainly experienced enough volatility for a full month. In the first 11 trading days in May, four brought better than 100-point moves for the Dow Jones Industrial Average.
One morning headline I read was talking about why the bulls were poised to take over and shatter record highs, while another was touting the extreme dangers of this market. It’s no wonder the market can’t seem to make up its mind this month.
I fully expect this pattern to continue as company after company misses earnings, headlines play both to the fear and greed in this market and economic data remains a mixed bag. We’ll cover our earnings reports for the week in just a moment, but first, I want to dig below the headlines and address two important economic reports in depth.
The biggest news happened on Wednesday, when the Commerce Department announced that retail sales were unchanged in April as gasoline and auto sales declined 0.7% and 0.4%, respectively. Excluding vehicle sales, retail sales rose only 0.1%, which was well below economists’ consensus estimate of a 0.4% rise.
Even more disturbing, in the past 12 months, overall retail sales have risen only 0.9%, which is the slowest annual pace since October 2009. Excluding gasoline prices, retail sales have risen 3.6% in the past 12 months, but consumers’ reluctance to spend their gasoline windfall on other items is perplexing economists.
Interestingly, the Federal Reserve reported that consumer use of credit cards in the first quarter dropped by the largest amount in the past four years. The fact that consumers remain reluctant to incur more debt may explain why retail sales remain anemic.
In April, the bright spot in retail sales were Internet retailers (up 0.8%), restaurants (up 0.7%) and home-improvement stores (up 0.3%). So, there are still some hot spots where consumers are spending their money.
Not only will negative first-quarter GDP growth and slowing retail sales cause the “data dependent” Fed to not raise key interest rates, but the fact that deflation refuses to go away is just another reason what the Fed cannot raise interest rates any time soon.
On Thursday, the latest evidence of deflation was the Labor Department’s latest Producer Price Index (PPI), which reported that wholesale prices declined 0.4% in April, due primarily to lower food (down 0.9%) and energy (down 2.9%) costs. The price of wholesale goods also declined a sharp 0.7% in April, while the price of services rose 0.1%.
Excluding wholesale food and energy prices, the core PPI declined 0.2%. The PPI has now fallen for five of the past six months. In the past 12 months, the PPI has declined a record 1.3%. So deflation remains rampant on the wholesale level.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
