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Strong Retail Sales Propel Stocks

The big news last week came on Friday as retail sales posted a much stronger than expected 1% increase. Also adding to the good news, May’s figures were adjusted upward slightly. Investor fears have been taking center stage as inflation numbers keep creeping up and concerns over a possible recession dog consumers.

The chart below reprinted from the Wall Street Journal shows why stocks rebounded on the news. Retail sales have been steadily declining all year. The sharp rebound in June is cause for investors to believe that things may not be as bad as they previously feared.

Stocks did close fractionally lower on the week as second quarter earnings season got under way. So far, 7% of S&P 500 companies have released earnings. Of those reporting, 60% have beaten analysts estimates. While that may seem impressive, it is below the five-year average of 77% beating estimates. As I have been saying for the last several weeks, corporate earnings will dip slightly, but no one expects them to drop to extremes.

This week, the Fed will announce another interest rate increase. It had been widely expected the central bank would raise rates by another 0.75% matching the increase in June. However, with inflation hitting 9.1% in June, some analyst expect the Fed to increase rates by a full 1%. The strong retail sales report may also provide the Fed with the added incentive to raise rates higher than initially expected.

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The Markets and Economy

 

  • According to the Census Bureau, 46% of the 970,000 single-family homes built nationwide in 2021 (440,000) have at least four bedrooms.

 

  • 35% of the 994 workers interviewed in November 2021 identified their biggest retirement concern was that they might outlive their retirement savings.

 

  • Shoppers bought more in June but got less than what they paid for. S. retail sales were up a strong 1% according to the Commerce Department. It appears households are able to navigate higher prices caused by inflation.

 

  • Britain’s next prime minister will face challenges not seen in decades. With Boris Johnson resignation, his successor will deal with fallout from brexit, the war in Ukraine and supply-chain issues from the pandemic.

 

  • As the travel-starved population returns vacationing flying abroad, some airports are struggling with staff shortages. Heathrow Airport is capping the number of daily departures and asking airlines to stop selling new tickets for the rest of the busy summer travel season. Just last Monday, Heathrow cancelled 61 flights affecting over 10.000 travelers.

 

  • Russia’s invasion of Ukraine is causing investors to re-think a popular fixed income investment. Two of three Chinese policy banks have lent billions of dollars to Russian borrowers for domestic energy projects. The easy to trade bonds were considered to be almost as safe as Chinese government debt. Since the invasion began, investors have dumped $27 billion of the bonds.

 

  • Inflation continues to accelerate as the Consumer Price Index hit a 41-year high last month. The 9.1% increase for the 12-month period ending June was the fastest pace since November Energy and agricultural goods saw the largest price increase due to the war in Ukraine. Prices at the producer level shot up 11.3% on a 12-month basis in June.

 

Even as the threat of a recession looms, American’s finances are stronger than it’s been in decades. This is due to money saved during the pandemic, debt paid off over the last decade and a strong job market. At the end of March, households had $18.5 trillion stashed in savings, deposits and money-market accounts. That is up $5 trillion from before the pandemic.

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The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

Consult your financial professional before making any investment decision. You cannot invest directly in an index. Past performance does not guarantee future results.

This newsletter was prepared by David M. Kover®. To unsubscribe from the Weekly Market Update please write us at 555 Eastport Centre Dr., Suite B, Valparaiso, IN 46383 or click this link:  Unsubscribe .

Note: All figures exclude reinvested dividends (if any). Sources: Bloomberg, Dorsey Wright & Associates, Inc. and The Wall Street Journal. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

Securities offered through Triad Advisors, LLC, member FINRA/SIPC. Investment advice offered through Resources Investment Advisors, LLC, an SEC-registered investment adviser. Resources Investment Advisors. LLC and Vertical Financial Group are not affiliated with Triad Advisors, LLC.