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U.S. Consumer Helps Stock Markets Reach More Records

December 30, 2019
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Monday Morning QB - Market Observations:

  • Thanks to Retail Sales the S&P 500 Rallies for 5th Week in a Row
  • Low Inflation, Low Interest Rates and Full Employment Continue to Boost the American Consumer
  • Healthy Consumer Equals Healthy Economy
  • Stock Market Contrarians Have Disappeared
  • NASDAQ Above 9,000 for the First Time
  • Markets Could Remain Quiet Until Earnings Season Starts Mid-January
  • New Legislation Kills the Stretch IRA

Monday Morning QB - Market Performance:

Strong retail sales data helped lift U.S. stocks to new highs during the holiday-shortened week.

The technology-heavy NASDAQ Composite outperformed the other major benchmarks and crossed the 9000 level for the first time.

The Dow Jones Industrial Average rose 190 points to close at 28,645, a gain of 0.7%, while the NASDAQ added 0.9%.

The large cap S&P 500 had its fifth consecutive week of gains, adding 0.6%, while the mid cap S&P 400 index gave up -0.1% and the small cap Russell 2000 declined -0.2%.

Resilient U.S. Consumer Spending is Still the Key to Economic Growth

Total U.S. retail sales for November 1 through Christmas Eve has risen 3.4% year over year, according to Mastercard SpendingPulse, including this year.

Growth in online sales set the pace, rising 18.8% compared with growth of 1.2% for in-store sales. Online sales of 14.6% of total retail sales was a new high for the online industry.

Ecommerce giant Amazon said they experienced the best holiday season since their inception. Amazon shareholders enjoyed a 4.4% increase in the stock price. Super Saturday, the last Saturday before Christmas, was once again predicted to be the biggest shopping day of the year.

The question is why has the 2019 holiday shopping season has been so successful?

The simple answer is high consumer confidence, especially for the rank and file workers.

Rank and File Workers had More Money to Spend this Holiday Season

Given a short supply of workers, minimum wage increases across 29 states, and wage pressure created from employees changing jobs for better wages, "below average pay" workers are experiencing the best job market in over a decade. More money equals more spending.

When we Americans are worried, we spend less!

According to the Federal Reserve Bank of Atlanta, pay for the bottom 25% of wage earners rose 4.5% in November from a year earlier. Given the fact that inflation is at or just below the Federal Reserve mandate of 2%, the bottom wage earners are experiencing real purchasing power.

Real purchasing power comes from wages growing faster than the increase in the cost of goods.

The net effect of wage growth outpacing inflation is the feeling of “getting ahead financially”. This emotion should not be dismissed. The feeling of being in a better financial condition has been missing for regular Americans for most of the last two decades.

The obvious sign of our feeling of newfound financial strength is the fact the average family spent more this holiday season.

China Dominates Our Clothing Industry

Did Santa give you clothing for Christmas? If so, the clothes were probably made by an elf in Asia and more specifically a Chinese elf.

China’s huge clothing export business is bigger than all the other $15 billion-dollar-or-more Asian exporters combined!

The graphic below, from howmuch.net based on World Trade Organization data, shows just how large the Chinese clothing export business has become.

Just the clothing industry alone is reason enough for both the U.S. and China to continue to make progress on the trade deal!

Continued optimism regarding the trade negotiations combined with strong employment continues to push the stock market higher.

Let’s hope this remains the status quo during a likely volatile election year.

Happy New Year - May 2020 find Peace, Good Health and Prosperity for all our readers!

(sources: all index return data from Yahoo Finance; Reuters, Barron’s, Wall St Journal, Bloomberg.com, ft.com, guggenheimpartners.com, zerohedge.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, www.stocksandnews.com, www.chaikinanalytics.com Chaikin Analytics, www.marketwatch.com, www.wantchinatimes.com, www.BBC.com, www.361capital.com, www.pensionpartners.com, www.cnbc.com, www.FactSet.com, W E Sherman & Co, LLC)