Trader Talk

Here's what weak retail sales mean for the markets

Trader on the floor of the New York Stock Exchange.
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The surprisingly weak June Retail Sales number (down 0.3% from May, and up only 0.6% from June of last year) is causing three knock-on effects:

1) A downward revision of Q2 GDP estimates, notably from Nomura, Barclays, Goldman Sachs, Morgan Stanley, and Credit Suisse;

2) A lowering of bond yields and a flattening of the yield curve, and

3) A reduction in the chances of a September rate hike.

Stock reaction: overall market modestly in the green, but with only 3 to 2 advancing to declining and volume on the moderate side, the advance is hardly enthusiastic. The poor Retail Sales (weaker than expected economy) is fighting the lower chances of a September rate hike (positive for stocks).

Notable movers: Retailers JCP, AEO, FIVE, AZO, ZUMZ, ROST all down 1% to 3%.

Money center banks up fractionally as JPM and WFC earnings were deemed "good enough" but the flatter yield curve is a real problem for banks going forward. Many regional banks like USB, CMA, FITB, and MTB have been in the red all morning.

So what happened? If you look at the year-over-year figures (June 2015 vs. June 2014), the good news is that everyone is continuing to eat out and drink more; they're also continuing to buy sporting goods, furniture, and cars and car parts.

U.S. Retail Sales (YOY)

Restaurants up 7.7%

Sporting goods, hobby up 6.6%

Home furnishings up 4.1%

Motor vehicle/parts up 6.5%

The bad news is that shoppers are continuing to avoid department stores, and—in a bit of a surprise—home improvement and electronics are drooping.

U.S. Retail Sales (YOY)

Department Stores down 1.7%

Home Improvement down 1.4%

Electronics/Appliance down 0.4%

Auto Parts up 3.3%

The biggest disappointment: nonstore retailers (online) up only 3.0%. You can't even claim sales are migrating online in a big way!