MorningWord 8/15/13: After years of consistently low interest rates, U.S. GDP is stuck below 2%, unemployment is stuck above 7% and after a fairly impressive housing recovery in the last year or so there is evidence (mortgage applications dropped 4.7% last week) that maybe that boom is stalling too. Much of the FOMC’s QE policy intent of the last few years has been to get the U.S. consumer off the mat so to speak, and in many ways those with jobs, homes and who own stocks have done very well, but with nearly two thirds of our GDP coming from consumer spending, and despite readings like the Univ Of Michigan Consumer Confidence survey (below) reaching 5 year highs, the recent rash of earnings disappointments in retail has to raise some red flags.
In the last few weeks we have seen earnings misses and/or downbeat commentary regarding visibility from high end retailers like COH, RL & M; fairly bad misses from mid level teen apparel names like ANF, AEO, GPS & URBN and even a same store sales miss from COST. Despite the newfound euphoria for AAPL, I will add that they sold 3 million fewer iPads than analysts expected in their June Qtr. I mention this because to me the iPad is the nearly perfect example of a discretionary item, in this day and age most every person in the developed world of working age needs a mobile phone and a computer, but nobody NEEDS an iPad.
The other day I highlighted the bifurcation between the components of the XHB (the Homebuilder index-here) with the relative outperformance by some of the retailers in the index (HD & LOW) and the very performance by the actual homebuilder stocks. I highlighted HD for 2 reasons. First technically it seemed to be basing below the previous highs and failed to make a new one with the SPX last week. Second since HD reports Q2 earnings on Aug 2oth, and at this stage of the Q2 earnings cycle, it may just be the most important report we get as we gauge the buoyancy of the ytd rally. As I mentioned in our prior post, homebuilders have been “ground zero” so to speak for fears of the Fed Tapering bond purchases, and interest rates are not letting up regardless of the dovish “Fed Speak”, so the question that needs to be asked is what follows the homebuilders if in fact we do get the SepTaper? Investors in HD might have been answering that question yesterday with the stock down 2.5% on decent volume, its worst showing in 2 months, closing below its 50 day moving average and breaking the healthy base it has been in for the last month.
Maybe the spate of poor retail results is just a head-fake and a great buying opportunity before back to school season kicks into gear in the coming days/weeks, but some a bit more skeptical than me think that the Fed’s policies have not been inclusive of the majority of the U.S. population and right as the Central Bank contemplates pulling back from its easy money policies, it may be at the exact time where the all-important consumer is running out of steam. I have my eye on HD commentary, this one could be the real “TELL”.