When I caught the headline “retail sales hold up in June – better than expected” – I was curious to read the detail. Yes, it’s true that nominal sales were flat MoM. But that’s not what it states. They don’t mention “nominal”. As analysts and investors – nominal values are of very little use. What helps us more when forecasting trends (and assessing risks) is real sales. Real retail sales are those adjusted for inflation. And with inflation stubbornly high ~3.0% year-over-year (approximately) – that makes a big difference. When viewed through this prism – real retail sales have been declining for months.
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Why ‘Soft Landings’ Deserve Scrutiny
What impact will a ‘soft-landing’ have on current stock valuations And does there need to be a recession to experience a meaningful (e.g. 12%+) decline? My short answer is no. The gist of this post is to remind investors that you don’t need a definitive line-of-sight to a potential recession before protecting gains. I say that because recessions are lagging events – which come at the very end of the cycle. By the time they arrive – the economic damage is already done. Therefore, we need to be in front of the curve. Typically in the 9-months leading up to a recession – stocks continue to trade at or near highs – as analysts raise their outlooks. Unemployment and earnings are usually strong – as GDP keeps its head above zero. But those who are able to understand where we are in the business cycle will pay careful attention to what’s happening shortly after peak economic growth.
Swoooosh
Is the market overconfident? Does it only see upside? What weight does it assign to the risks? And are the ‘sirens’ of perpetually higher prices too hard to ignore? One popular measure of confidence is the weekly AAII Investor Sentiment Survey. As at June 26th – 44.5% of all investors lean bullish – up from 39.0% June 5th. Analysts have also been busy hiking their S&P 500 targets for year end – with the average now around 5400. But not all analysts are aligned. Separately, we look at the record 20% one-day decline in Nike… they are warning of sales declines next year. Is this a great long-term (3-year) opportunity; or a signal to stay clear?