Economic data reported yesterday suggests that the consumer is “holding back.”

By KENNY POLCARI

The retail sales spending numbers reported yesterday were not what we expected at all… The report showed that retail sales fell by 3% vs. the expected rise of 3% — a complete 180. That has some nervous, and I ask why? OK, yes the US economy is built on the consumer. We are a service economy with 75% of our GDP driven by the consumer. So retail sales were off. Could it be that consumers are not spending but rather SAVING their money for a “rainy day?”  Is it a bad thing for the consumer to decide to slow down spending and increase savings for the inevitable moment when it all stops short?

And to add more angst, the IMF cut their 2019 global GDP forecast to 3%, the lowest level since the GFC (Great Financial Crisis), citing the usual suspects: trade and geo-politics.

Next, investors continue to pull apart the latest “trade lite” deal only to find NO real answers about anything. With the threat of increased tariffs still very real on Dec 15th, the algos are now re-thinking the whole breaking open of the champagne bottles scenario from Thursday and Friday.

I mean, the media has done a good job of reminding us that trade tensions are high. The global economy is a mess, earnings are expected to be negative, interest rates are low and going lower because the US economy is about to go off the cliff — never mind all of the political drama taking place between the GOP and the Democrats (think impeachment, collusion, corruption and the list goes on) — all while the field of Democratic contenders tells us that capitalism is bad, hard work is BS, and that we should get ready for the “Socialist State”? So is it any wonder that consumers think about pulling back?

Could the threat of the country going off center and far left be a concern to anyone? Could the threat of the county going off center and far left cause the consumer to re-think the whole spending idea?  Or was this one report a flash in the pan, especially since the prior month in yesterday’s report was revised UP, suggesting that spending in September may have been a bit weaker because spending in August was higher than originally reported? I mean in the end, it’s the trend that matters more than the individual monthly report — no?  At least that is what they keep telling us when the data surprises (in either direction).

So, while the economic data was a bit weaker,the earnings data continues to come in strong. Yesterday we got more bank earnings, BAC, PNC, BK, USB, ALLY, and they all BEAT the estimates. They didn’t suggest that the future was dark at all. And then after the bell, we heard from NetFlix (the N in FANG) and CSX (the railroad company) and guess what? They BEAT the estimates as well. There were other reports: AA and IBM, see below.

Now NFLX  was UP $2 or +0.71% during the day. Traders took it up another $23 or +8.18% in the after-hours session, after they reported earnings of $1.47/share vs. the expected $1.04/share. Yeah, ok they missed on the top line reporting $5.24 billion, vs. $5.25 billion. They offered up weaker outlook for next quarter, but reiterated that the “long term outlook” for the business remains unchanged. The algos loved it.

CSX, the freight transportation company, you know the one that everyone was worried about, because it speaks directly to the economy? It reported earnings of $1.08/share vs. the expected $1.01/share. That stock rallied by 4% after-hours.  And this caused shares in other rails to rally as well. UNP (Union Pacific) was up 1% ahead of this morning’s earnings announcement. Will they mimic the CSX commentary?

AA (Alcoa Corp) reported a loss of 44 cents, worse than the expected loss of 33 cents. They CUT forward guidance and lowered the outlook for aluminum demand and they still took it up 7% after the bell… Why? Here was the perfect reason to punish it, but if you look at the chart, they had already taken the stock down (punished) it AHEAD OF THE ANNOUNCEMENT on the expectation that earnings were going to be bad, and they were. So in usual Wall Street logic, it MUST be a BUY now!

And Big Blue (IBM), they missed on the top line. Revenues came in at $18.03 billion vs. the expected $18.22 billion and would have missed on the bottom line if not for the exclusion of “certain items.” But, it did report a slight beat at $2.68/share vs. the expected $2.67/share. But, the market is keen enough to realize that if not for the exclusions, they would have missed the number and BANG, that stock sold off 5%.

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