Did we get lucky? Did we get news out of these retailers and Amazon (AMZN) that might have changed the way the Fed was thinking when Jay Powell actually said it is worth paying attention to the data, so let's break a bit from our two-three rate hike orthodoxy?
If you look at Walmart (WMT) and Lululemon (LULU) , at Kohl's (KSS) , Target (TGT) , Burlington Stores (BURL) and TJX (TJX) and, of course, Amazon, you got lots of good anecdotal evidence that the consumer is spending. The action in the stocks of Home Depot (HD) and Lowe's (LOW) would also have you believe that there is something positive at work that might give the Fed pause about a pause.
At the same time, have you seen the housing stocks? Have you seen how the stocks of Lennar (LEN) and PulteGroup (PHM) are doing? They have been roaring.
What's happening?
There are two ways to look at it:
1. If the Fed doesn't want to throw us into a recession and is content to let the expansion restart, then these moves make sense. These stocks should therefore be embraced.
2. But if the Fed feels "fooled" by the markets or wants the ammo to raise, these stocks could give it to them.
Look, I think that the holiday season was generally a strong one, except for those companies in the mall. The problem with that analysis, though, is there must be a recognition that the stocks in the mall are a big slug of retail. Some of them rebounded yesterday -- including JC Penney (JCP) -- but off a base that suggests there's barely a pulse.
More importantly, I think the bond market is giving the housing market a reprieve. Housing all over the country is being repriced downward, but at the same time, mortgages have had some downward pressure, something that wasn't in the zeitgeist when the housing stocks and their cohort, like Masco (MAS) or Fortune Brands (FBHS) or Stanley Works (SWK) fell apart in the last few months.
Amazingly, you have the stocks of the homebuilders now back to where they were BEFORE Jay Powell invoked the three-four interest rate hike scenario.
Here's what I think is happening. The Fed was targeting high employment growth, as I have indicated. Of course, no one from the Fed would ever say "we want rates to be so high that if we get a lot of layoffs we can lower them." Yet, I think their models did indicate that would be the prudent thing to do -- hence the difference between my view of what was prudent -- don't kill the expansion -- with theirs -- crush the expansion to stop nascent inflation that MUST occur when so many people are hired.
The Fed realized that it can still stop the expansion if necessary, but it would prefer to do it from a higher level of growth so the landing is slower and less rocky.
What the Fed didn't realize is that all things related to housing and the consumer were acting as if the Fed would never stop.
Now that it has, we are getting the stock reaction to what WILL happen in the next few months. In other words, the retail stocks aren't really rallying because of the holiday season, which would cause the Fed to take away the pause that refreshes.
They and the housing stocks are reacting to what will happen this spring, which include the possibility of lower mortgage rates, better housing affordability and a resumption of a cycle that was presumed to have disappeared because Powell and company's models seem to want it that way.
Is the move at its infancy? I think yes. But, like the Fed itself, which is just waiting for the possibility to pounce, a sustained move in these stocks will give them the ammo to step on the brakes as soon as the February meeting.
