There was some murmuring on the trading floor about Wednesday’s report that showed consumers were increasingly turning to plastic as a backstop. Consumer credit jumped to $15.29 billion in March, the Federal Reserve reported, more than triple of what was expected.
"Well over $6 billion of that was credit cards, which, I think, underscores my hypothesis that people are buying milk, bread and gasoline on a credit card -- it's their last lifeline to reality," Art Cashin, head of floor operations at UBS, told CNBC.
For those facing the worst situations, like foreclosures, they think, "I'll keep using my credit card and … maybe something good will happen in the next six months and I'll catch up," Cashin said.
Against this backdrop, Wall Street cheered when April retail-sales reports, though mediocre, showed some improvement from March. And investors chose not to flinch when Wal-Mart Stores said its shoppers were having a hard time stretching their paycheck through the end of the month.
A lot of analysts are expecting consumers will get by with the help of the federal tax rebates, which are arriving in mailboxes as we speak.
"That money is getting spent," said Nadav Baum, managing director of investments at BPU Investment Group in Pittsburgh. "We're not a saving nation … we're a spending nation," he said.
Rebate money will start filtering into the economy over the summer, but once that’s spent, consumers are going to need signs of fundamental economic stability to make them dig out their wallets for more than gas money.
Analysts say oil prices have to come down. Period.
And guess what? Despite saber rattling by the likes of Goldman Sachs and others who say oil could reach $200 a barrel in the next year or two, more than half of oil and gas industry executives project oil prices will drop below $100 a barrel by year end, according to a survey by KPMG.
The price of oil "is way out of whack with reality," said Peter Cardillo, chief market economist at Avalon Partners. "Speculation can only go so far,” Cardillo said. “There will come a point in time when reality sets in and … I think we’re pretty close to the top.”
And the market agrees.
"Obviously, [the market] thinks oil's got to come back down … that's what the market is telling us," Baum said, citing the fact that the S&P 500 is trading around 12 to 13 times earnings. "And markets don't make mistakes," he said.
"The market is doing just fine -- we've seen the lows in the market," Cardillo said. "Are we going to have a bull stampede from here straight to 14000 or 15000? No. We'll stay in a trading range, with a projection of better times ahead," he said.
In fact, while the market will most likely end down for the week, most analysts and traders have said it’s just a natural pullback after the recent rally that’s pushed up the Dow about 10 percent since mid-March.
Shoppping for Retail Stocks
If you have any doubts that the market isn’t worried about consumer spending, just look at the S&P 500 retail composite index, which is up 1.3 percent year to date, outperforming the broader S&P 500 Index.
Most analysts and money managers still favor the discount and wholesale chains such as Wal-Mart , Costco and BJ's Wholesale , seeing continued momentum from demand for necessities and low-cost items.
But, there are more picks out there than just stores that sell TP in bulk.
Howard Davidowitz, chairman of Davidowitz & Associates, sees some select retail buys in TJ Maxx , which has benefited from sluggish department-store sales and Urban Outfitters , which has most of its stores outside malls.
Metropolitan Capital Advisors Founder Karen Finerman said she likes JCPenney , Children’s Place and American Eagle .
OptionMonster.com Co-Founder Pete Najarian’s pick, also in the economy-defying teen sector, is Aeropostale . The stock is around its 52-week high, but there’s still some interest there. Aeropostale clothing tends to be about 30 percent cheaper than its rivals and, Najarian notes, people are coming out of stores with more than they expected to buy.
To be clear, analysts don’t expect a significant uptick in consumer spending this year. Even if oil prices recede to sub-$100 terrain, consumers are going to need reassurance from stability in the housing market and an improvement in the employment outlook.
“The current state of consumer spending is weak,” said Michael Niemira, chief economist at the International Council of Shopping Centers. “I think it will continue to be weak in the second quarter … it will get a little stronger, temporarily, in the third quarter, and then revert back to … a more subdued pace … by the fourth quarter,” Niemira said.
Keep Your Eyes on the Road
For those trying to time the comeback in consumer spending, Niemira points to auto sales.
If you can afford a new car, chances are, your spending situation has improved.
“Historically, automotive has been a leading indicator of broader consumer spending,” Niemira said. But it’s particularly important in the current environment of rocketing oil prices because, “a car purchase is tied into your perception of energy,” Niemira said.