Momentum in the retail sector appears to be pausing once again, as Friday’s government report showed a modest 0.1% gain in October spending, below expectations of 0.3%. Making matters worse, the 0.1% growth originally reported in September was revised to indicate no gain at all. The data comes on the heels of a few disappointing sales forecasts from some of the nation’s key retailers, casting a shadow over the group as we enter the all-important Christmas season. Autos and appliances were particularly weak, offsetting some gains at restaurants and online buying sites. More results will be coming out this week from the retail sector. On Friday, we will hear from our sole retail play – Foot Locker, which is expected to have earned $0.94 in the third period vs. $0.83 last year, but its forecast for the final quarter will be crucial. The tepid shopping news sent consumer shares reeling and it was hard to find any stock bidders for the week with the exception of some utilities. Energy stocks were down nearly 6% as oil prices fell to $40.74/bbl. Technology shares also took a hit, off by an average of 5%. In all, equities broke a six-week winning streak giving up about 4%. Commodity prices slumped to record lows across virtually all sectors with grains and metals particularly hard hit as growth in foreign markets slowed. Investors should likely brace themselves for further headwinds abroad, whether it’s a deterioration in China’s trade position, additional unsettling economic news in the euro zone or a flare-up in the Middle East. Despite the poor retail numbers, the odds have shifted in favor of the Federal Reserve raising interest rates next month, the first hike in about a decade as they point to stronger employment figures. On Tuesday, we will get a sense of conditions for inflation with news on the Consumer Price Index and a report on industrial production. Wednesday we will find out about housing starts for October and the minutes of last month’s FOMC meeting will be released. The worst scenario: Slow growth state-side accompanied by a rate hike that may likely have to be reversed if it puts downward pressure on the economy in the start of 2016. Finally, the tragedy in Paris on Friday will most likely spill over to investor’s sentiment on world markets this week and I believe equities will do well to break even this year.
Here is the answer to last week’s trivia question: In 1982, U.S. regulators broke up AT&T requiring the company to divest its regional Bell telephone companies, with AT&T maintaining the long-distance, Western Electric and Bell Labs businesses. In 2005, which of the “Baby Bells” acquired AT&T and subsequently assumed its iconic name? NYMEX, Southern Bell, Pacific Northwest Bell or Southwestern Bell. Answer: Southwestern Bell, which changed its name in the late ‘90’s to SBC Communications before it acquired AT&T.
Today’s Trivia Question: The average price earnings ratio based on trailing reported earnings for the S&P 500 as of Friday is?: 23.3, 19.7, 24.9 or 17.8.