Friday wrapped up another wild week for markets, with the S&P closing up just 0.2% after having been up over 1% in the morning. Friday was off to a great start after JP Morgan (JPM) reported much better than expected earnings, handily beating both top and bottom line expectations. Action Alerts PLUS charity portfolio name Citigroup (C) also joined JPM with better-than-expected earnings, with both banks citing strong revenues in their consumer products and fixed income trading businesses.
The strength in consumer products fits in well with all the positive consumer data we have been seeing, which was capped off with a solid retail sales report on Friday.
Retail sales saw strength across several key categories including auto sales, building materials, non-store (online) retailers and restaurants. While the "core" report came in just under expectations, we still saw strength in critical areas like online sales and restaurants. Online sales came in up 0.3% for the month and 10.6% year over year, while restaurants were up 0.8% and 6.1% respectively.
Looking at total growth in online sales along with its year-over-year percentage change, we get a good sense of how strong online business has been. In fact, year-over-year online sales for September are sitting 2% over their lifetime average of 8.6%. Taking online sales data along with the solid restaurant sales data we can see that consumer discretionary spending is healthy and growing.
While business activity has clearly picked up in September from the August lull as we've seen with the significant improvements in ISM manufacturing and services data, now we need to see company earnings.
We have already seen the likes of PepsiCo (PEP) , Constellation Brands (STZ) and JPM report great earnings and ULTA Salon (ULTA) putting out very positive comments about their business visibility. Now what is needed for this market to overcome rising rates is rising earnings. At the end of the day, if companies aren't executing and making money, equities will go into decline regardless.
Monday is starting off in somewhat of a risk neutral mode, with equity and oil futures just slightly down. Oil is trading around $50 with commentary coming from some OPEC sources saying that it could be headed for $60. Also supporting the move higher in oil was news over the weekend regarding the financial hardships that Saudi Arabia is experiencing as result of the oil price collapse early in 2016.
Saudi Arabia has, rather ironically, gone from driving the collapse in oil in hopes of destroying the U.S. shale business to now scrambling to try and keep a floor under prices so that they can support the massive social subsidies that the Saudi monarchy provides for its citizens. That said, oil stabilizing around $50 is a positive event that takes pressure off of U.S. oil producers, but still allows consumers to enjoy the benefits of low fuel costs.
Toy maker Hasbro (HAS) has just reported much better than expected earnings and revenues with positive comments about its business, reinforcing our strong consumer thesis. Hopefully this is a start to a strong earnings week as well.