Daily Agenda: Investors Eye U.S. Retail Sales

U.S. retail sales for January disappoint; Ukraine cease-fire reached; Greece leaves Brussels empty handed.


Luke Sharrett

While U.S. President Barack Obama brought geopolitical risks into the spotlight yesterday with his request to Congress for a military commitment to the fight against ISIS, for investors the U.S. consumer remains the big story for equity markets. January retail sales numbers from the U.S. Census Bureau was much weaker than forecast at an 0.8 percent contraction for the month, as low gasoline costs keep down total spending in dollar terms. Many market strategists had hoped for an increase in core spending, as U.S. shoppers with more cash in their pockets thanks to cheap gas go to market. Despite recent consumer sentiment indicators improving markedly in recent months, spending excluding automotive and gasoline rose by only 0.2 percent over December. With many investors counting on activity at the cash register to boost corporate profits despite stagnation abroad, this data is a blow to equity market sentiment.

Bailout and cease-fire for Ukraine. The International Monetary Fund unveiled a $17.5 billion credit facility for Ukraine today, with additional individual national pledges bringing the total to $40 billion. This bailout for Kiev arrives the same day as the announcement of proposed cease-fire terms with Russia, brokered by Germany and France.

No solution for Greece — yet. No definitive agreement came out of the Eurogroup meeting in Brussels of euro zone finance ministers on terms for Greek debt restructuring, despite early reports that a bridge loan was proposed. Without coming to terms with the so-called troika, Athens will have insufficient cash to continue some government services at month end. Separately, Ministry of Economy and Finance data released today show the headline unemployment rate in Greece holding steady at 28.5 percent in November.

Bank of England says rate hikes in the foreseeable future. Bank of England governor Mark Carney warned that the bank’s key rate may rise sooner than some economists have forecast, despite the probability of negative inflation in the coming months. According to the bank’s monthly inflation report, lower fuel costs driven by the slump oil prices will ultimately drive higher consumer consumption levels and prevent long-term deflation.

Japan shows uptick in pace of industrial activity. In a positive signal for Abenomics, core machinery orders expanded by 8.3 percent month-over-month in December, the largest percentage in six months. Separately, corporate goods price index figures for January came in softer than forecast, as low fuel input costs weigh on inflation despite increased activity.

Quarterly earnings season continues. In another busy day for corporate earnings announcements, AllianceBernstein exceeded consensus analyst estimates by $0.06 at $0.57 per share, as total assets under management rose modestly for the fourth quarter of 2014. American International Group will announce fourth-quarter results today after equity markets close in New York.


Portfolio Perspective: Why Investors Can Bet on a Robust Stock Market Rally in a Pre-Election YearJesse Frehling, Focused Wealth Management

With history as our guide this pre-election year, we can bet on seeing a robust stock market rally in 2015. The rationale is that the president does whatever necessary to pump up the economy, thereby seducing voters to re-elect his party. In pre-election years since 1945, the S&P 500 has gained an average of 16.13 percent and has never ended with a loss, according to research from Bespoke Investment Group. By contrast, the S&P 500 returned an average of 6.33 percent during the first-years of a presidential term, 5.32 percent in the second years and 5.68 percent in the fourth years.

The stock market performs even better during years the president is up for re-election, Bespoke found. The S&P climbs an average of 11.06 percent in those years and has rallied in nine out of ten incidences. In election years when the president is not up for re-election, the S&P drops by an average of 3.3 percent and only half the time ends the year on a gain.

Marshall Nickles, professor of economics at the Graziadio School of Business at Pepperdine University in Malibu, California, published a study in 2004 that revealed a mind-blowing difference in timing the stock market around election years. If investors hypothetically put $1,000 in the S&P 500 on October 1 of the second year of a presidential term, sold on December 31 of the fourth year and did this 13 times between 1952 to 2000, the fund would be worth $72,701. But if investors had put $1,000 in the S&P on January 1 of the first year of a presidential term and sold September 30 of the second year over the same period, they would have lost money in six of the 13 instances. The $1,000 fund at opening was worth $643.

Jesse Frehling is a political economic analyst at Focused Wealth Management, a registered investment adviser in Highland, New York.