Stocks Scratch a Win on Retail Sales

Analysts continue to watch big banks report quarterly earnings

Stocks mostly moved higher on Tuesday thanks to a turnaround in the health of the U.S. consumer. After three months of outright declines in retail sales, shoppers returned with a vengeance now that winter’s chill has faded.

In the end, the Dow Jones Industrial Average gained 0.3%, the S&P 500 gained 0.2%, the Nasdaq Composite lost 0.2% and the Russell 2000 lost a fraction.

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Energy led the way with a 1.8% gain — pushing up the Market Vectors Oil Services ETF (NYSEARCA:OIH) recommended to Edge subscribers by 2.5% — thanks to a 2.4% rise in crude oil to finish at $53.13 a barrel. The black stuff was up after the close as well thanks to a smaller-than-expected API inventory build.

There is a growing consensus that the bottom for oil is probably in, which is why I recently profiled five energy stocks that look good for upside breakouts.

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Utilities were also on the move, gaining 0.6% as a group. That helped push Duke Energy Corp (NYSE:DUK) recommended to clients back on March 20, to a gain of 2.3%.

Bank stocks were in focus as Wall Street lifts its veil for the Q1 reporting season. JPMorgan Chase & Co. (NYSE:JPM) gained 1.6% thanks to a core earnings-per-share beat helped by better capital markets and investment banking results. Wells Fargo & Co (NYSE:WFC) lost 0.7% after its beat was dismissed as lower quality due to its reliance on a tax benefit. Mortgage banking was highlighted as a bright spot.

Elsewhere, Morgan Stanley (NYSE:MS) gained 1.5% while Goldman Sachs Group Inc (NYSE:GS) gained 1.1%.

After the close, Intel Corporation (NASDAQ:INTC) reported results that hit recently lowered guidance due partially to subdued PC demand and low inventory levels in the supply chain. Both are showing signs of improvement, however, helping shares gain more than 2% in after-hours trading as investors show relief that the numbers weren’t worse. Edge Pro subscribers are enjoying a 30%+ gain in their April INTC calls.

Turning to retail sales: Consumers came roaring back in March with growth surging, on a month-over-month basis, by 0.9% — a level not seen since early last year albeit slightly weaker than expected. The gain was led by a massive rebound in auto sales, which were up 2.7% over February. This reflects both consumer confidence (putting down the cash for a big durable goods purchase) as well as relatively easy credit conditions for auto loans and elevated used car prices.

There are big gains elsewhere as well, with furniture and home furnishing, building materials, and clothing stores putting in strong performances.

With consumers emerging from their winter hibernation, analysts are pushing up their first quarter and full-year 2015 GDP growth forecasts.

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Consumer stocks, as represented by the Consumer Discretionary SPDR (ETF) (NYSEARCA:XLY), has been in a funk since late February as the market waited for clarity on whether or not the recent slowdown in spending was truly being driven by the snow. Now that shoppers are showing renewed resolve, an upside break above overhead resistance at $77 look likely.

Why? Because the tailwinds consumers are enjoying should continue.

Ed Yardeni at Yardeni Research notes that his Earned Income Proxy, which closely tracks wages and salaries in personal income, is up 1.1% over the last three months. Unseasonably low gasoline prices should help as well: Consumer spending on gasoline fell from a $505 billion seasonally-adjusted annual rate in November to $428 billion in February before falling further in March.

Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters.

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