The Retail Sales report issue this morning was a surprise, with nine out of the 13 categories falling.
The largest dip came from gas sales down 6.5%, which makes no sense given the nearly-60% decline in oil prices. Plus, the stronger jobs, lower oil prices and strong consumer sentiment/confidence levels all should point to a stronger consumer, not a weaker one.
The retailers that we've talked to and those that have already reported earnings or monthly same-store sales also suggest a stronger environment than this report indicates. So, for the time being, it's better to write some of this off. There are simply too many other data points that suggest the consumer remains healthier.
The other item weighing on the markets is the mixed earnings results from JPMorgan (JPM) and Wells Fargo (WFC). JPM missed due to a higher-than-expected legal charge. WFC reported in line, but with upside limited due to the pressure on net interest margins. As is usually the case with the big banks, both companies had puts and takes and while the low interest rate environment clearly limits the upside to the results, the loan growth story was strong led by strong C&I, auto and consumer segments. JPM also posted better-than-expected investment banking and credit card results, which bodes well for Morgan Stanley (MS), MasterCard (MA) and American Express (AXP).
At Action Alerts PLUS, we've been more selective on the financials because of the rate environment, owning more consumer-facing credit cards and global wealth management exposure and we will stick with this strategy for now.
We expect the banks to remain in a trading range until rates move higher -- and currently the opposite is happening.