EmailThe equity market got back on track with a 0.7% gain on Monday, meaning last Friday's decline was a one-day wonder as far as losing streaks go.
News that Greece's parliament voted in favor of tougher austerity measures in a bid to avoid defaulting on its debt and ongoing buying momentum in Apple (AAPL), which took just seven weeks to move from $400 per share to $500 per share, sparked the advance.
Buying conviction is lacking this morning, however. The S&P futures are down four points, which is setting the stage for a modest decline at the start for the cash market.
There have been some interesting developments since yesterday's close, most of which have positive undertones:
- The GOP is reportedly behind extending the payroll tax cut through the end of the year without a spending cut offset
- Italy and Spain conducted successful debt auctions
- The ZEW economic sentiment reading in Germany reached its highest level since last May
- The Bank of Japan eased its monetary policy by adding 10 tln yen ($130 bln) to its asset purchase program and
- China's premier reportedly said China is happy to get more involved with the EFSF
In another development, the Department of Commerce reported retail sales were up 0.4% in January (Briefing.com consensus +0.8%) after being unchanged in December. The weaker-than-expected headline figure can be attributed to a surprising 1.1% decline in motor vehicle and parts sales. Excluding autos, retail sales rose 0.7% (Briefing.com consensus +0.5%) after declining a downwardly revised 0.5% in December.
In general, there was a rebound in most sales categories that showed declines in December. Nonstore retailers were the notable exception there, as sales fell 1.1% in January following a 0.5% decline in December.
The overall increase in retail sales was paced by general merchandise stores (+2.0%), gasoline stations (+1.4%), food and beverage stores (+1.3%), and sporting goods, hobby, book and music stores (+1.1%).
Core retail sales, which exclude auto, gasoline station, and building materials sales, jumped a healthy 0.7%. That is a favorable development as it relates to first quarter GDP growth prospects, as is the recognition that the bounce back in most sales categories signals the weakness in December was not the start of a trend.
One check on the market this morning is the warning from Moody's that it could eventually cut the AAA ratings for France, Austria, and the UK, downgrading its outlook for each of those countries to negative. In addition, Moody's cut its ratings for Italy, Spain, Portugal, Slovakia, Slovenia, and Malta.
European markets handled this news reasonably well, although it provided a reality check that EU debt issues have not gone away on the Greek vote alone.
Separately, we suspect another check on the market is the growing tide of bullish sentiment. That tide is certainly not swelling in volume totals, yet it is rising with Apple's stock price, the growing indifference to seemingly negative news, and sentiment readings themselves.
There has been a solid basis in our estimation for the strong showing to start the year. Specifically, there has been a recognition that last year's fears were overdone and now there is an appreciation for the earnings growth last year that went unappreciated. In brief, there is a catch-up trade at work.
Notwithstanding our view, we can appreciate that the market is ripe for a consolidation period in the near term.
--Patrick J. O'Hare, Briefing.com
Patrick J. O'Hare is Chief Market Analyst for Briefing Research, Briefing.com's institutional research service. To request a free trial, please email researchsales@briefing.com.
