Despite weak holiday sales, some retailers have seen enormous gains this year: Gap up 69 percent; TJX Cos. up 30 percent; Macy's and Target both up 16 percent; Ross Stores up 13 percent; and Nike up nine percent.
Why no sell-off? Here's why:
a) There will be some earnings per share growth in the mid-teens for many retailers, largely because of the extra week this quarter;
b) much lower cotton costs year-over-year;
c) lower inventories help gross margins;
d) U.S. gross domestic product was pretty good in the third quarter;
e) home prices are improving; and
f) gasoline prices are much lower.
Finally, don't throw out the holiday season yet. The Mastercard data said it was weak, but we have yet to hear directly from the retailers.
2) The yen hit a 20-month low against the dollar, almost the same against the euro, as the government of Prime Minister Shinzo Abe begins. Japanese stocks are approaching a 52-week high; the Shanghai Composite Index index is near a five-month high.
(Read More: Why Japan's Nikkei Could Rally 30% Next Year: CEO)
The Bank of Japan's monetary policy committee will meet on Jan. 21-22; it is widely expected to adopt at two percent inflation target, up from one percent. Does that mean this trade is already priced into the market? The yen is down 2.2 percent since Abe was elected Dec. 16; but there are bears on the yen I have talked to who think the dollar/yen could eventually go to 100; it's currently at 85.
3) The U.S. housing recovery continues: S&P/Case-Schiller home price index for October was up 4.3 percent, above the 4 percent increase expected. With lean inventory, higher prices, and high levels of affordability, housing has been one of the bright spots for the U.S. economy in 2012 and will continue to be so in 2013.
4) U.S. government debt rating is in trouble ... in China. Seriously. China's Dagong Global Credit Rating Co. has place U.S. credit on its "negative watch" list. It cited the impasse on budget negotiations, no plans for maintaining solvency, debt growing faster than revenues, and frequent emergencies such as the fiscal cliff and debt ceiling deadlines adding to the risks.
Dagong, founded in 1994, is called an independent ratings agency. It is trying to become a rival to Standard & Poor's, Moody's, and Fitch, but the U.S. Securities and Exchange Commission has refused to recognize it.
In August, Dagong downgraded the credit rating ofthe U.S. to A from A+, with a negative outlook.
5) Autos a bit weak pre-open as Toyota Motor expects global sales to rise only two percent in 2013; production to remain flat compared to 2012.
