Trader Talk

Consumer Confidence Needs To Turn Into Spending

This post is from CNBC producer Robert Hum.

The market’s rally today was driven by the strong May consumer confidence numbers released at 10am ET this morning. With confidence building, the hope is that the consumer will start spending again.

Given this mindset, investors bought up consumer discretionary stocks, which led the markets higher today. Many retailers rose mid-single digits today, while casual dining restaurants ended the day up in the high single digits.

  • US Economy at Risk for Double-Dip Recession

Both retailers and casual dining restaurants have been plagued by substantial same-store sales declines during the past few months amid tighter economic conditions.

With poor sales adding pressure to their bottom line, many companies depended on tight cost controls and effective expense management to sustain earnings. Nevertheless, many consumer discretionary stocks are poor performers this month (and this is even after today’s strong gains):

Retailers         This Month           Today

Macy’s         -13 percent         +6 percent

JC Penney     -13 percent         +6 percent

Home Depot  -10 percent         +4 percent

Best Buy        -3 percent          +5 percent

Tiffany          -3 percent          +6 percent

Restaurants    This Month          Today

DineEquity       -11 percent        +9 percent

Cheesecake Fact. -7 percent      +7 percent

Darden Rests.   -4 percent          +8 percent

Brinker Intl.      +1 percent          +9 percent

Bottom line: unless improved confidence can ultimately translate into greater consumer spending, traders fear a rally in consumer discretionary stocks may be short-lived. While it’s good for the consumer to be building confidence, in the end, it is actual spending that drives sales. And right now, retailers and restaurants alike need to see stronger sales if they hope to improve their bottom-line results.

As a result, all eyes will be undoubtedly on Monday’s key April personal spending report.

Group of Securities



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