May 13, 2016

Stocks are slightly lower this morning despite some better than expected economic data. The Dow and S&P 500 are currently down 41 pts & .15%, respectively. Tech and healthcare—among the worst performing sectors this year—are up modestly. More specifically, semiconductors & biotechs are faring well. On the other hand, transports & banks are weaker in early trading. WTI crude oil is down a bit to $46.30/barrel, but remember oil is hovering around the highest levels since early November 2015. So that’s constructive. Bonds are mixed, with yields moving up on the short end but down on the long end. The 2-year Treasury yield is up to .93%, but the 10-year Treasury yield is down (again) to 1.73%.

US retail sales surprised to the upside with 1.3% m/m growth in April. Sales excluding autos & gasoline also beat expectations with .6% growth—the third consecutive month of positive growth. On a year-over-year basis, retail sales excluding autos & gas are up a very healthy 4.4%. Barron’s notes “gains are spread throughout most of the report,” with better momentum in previously soft spots like apparel & restaurants. This report is very encouraging.

University of Michigan Consumer Sentiment shot up to 95.8 this month from 89.0 in April. That’s the highest sentiment reading since June 2015. What’s more, the index is hovering around the upper end of data going back 10 years. The survey saw marked improvement both in current conditions and future expectations. Bloomberg notes “consumers citing better income prospects pushed future expectations higher.” In other words, wage inflation expectations are moving up. This conclusion is corroborated by last week’s jobs report.

The Producer Price Index (PPI), which measures wholesale inflation, remained very low in April. On a year-over-year basis, headline PPI is flat. So even though oil prices are rising and the dollar is falling, wholesale inflation isn’t moving much. If you exclude the more volatile food & energy categories, PPI is up only .9% y/y. PPI should begin to pick up soon if economic growth re-accelerates.  

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