Americans Can Spend

By Nicholas Jasinski | Thursday, September 16

Shop Until They Drop. Stock indexes didn't quite know what to do today after yesterday's bounce. The rise on Wednesday was the S&P 500's biggest move in more than two weeks.

Today, the major U.S. indexes opened about flat, before almost immediately falling deep into the red. A full-day comeback followed, and by the close, indexes were back around break-even. Lots of drama for little change in the end.

The S&P 500 and Dow Jones Industrial Average each closed down less than 0.2%, while the Nasdaq Composite ticked up 0.1%.

Materials stocks were among the worst performers in the S&P 500 today, on a selloff in metals prices. Copper fell 2.8%, gold lost 2.1%, and silver dropped 4.2%.

Consumer discretionary stocks, on the other hand, led the market higher today. The catalyst for that move was this morning's release of August U.S. retail sales figures. Those showed a 0.7% increase in spending over July, when retail sales fell 1.8%. The August rise handily beat the consensus forecast for a 0.7% decline.

After that ugly July report, investors and economists had been concerned about the health and willingness to spend of the U.S. consumer. Rising inflation and the Delta wave of the coronavirus seemed to be taking the wind out of retail sales’ sails.

But Americans seemed willing to stomach those higher prices in August. And, perhaps counterintuitively, some of the retail spending bump actually appeared to be thanks to Delta.

RBC Capital Markets' Chief U.S. economist Tom Porcelli explained in a note to clients today:

This retail sales report really feels like a “Delta” report...It feels like a hunker down, 'I’m worried about Covid again' sort of report. Grocery store spending was up big (one of the biggest gains this year) so too was online shopping (also one of the bigger gains this year outside of January).

And guess what performed poorly? The lone service component of this report: Restaurant sales. It showed ZERO growth on the month after rising fairly aggressively over recent months.

All in, this number bested expectations by a lot. We think Delta is how you square the circle.

The bottom line is that the U.S. consumer remains alive and well, despite the Delta wave and headlines about inflation. On the demand side of the equation, the setup for the holiday shopping season is looking plenty positive. Companies' challenges may be more concentrated on the supply side of things, with production and shipping bottlenecks not going down easy.

But that's a relatively good problem to have: Retailers would rather be forced to turn eager customers away than be stuck with loads of unsellable inventory.

Read more on today's August retail sales report from Barron's Jacob Sonenshine here.

DJIA: -0.18% to 34,751.32
S&P 500: -0.16% to 4,473.75
Nasdaq: +0.13% to 15,181.92

The Hot Stock: Etsy +3.1%
The Biggest Loser: Freeport-McMoRan -6.6%

Best Sector: Consumer Discretionary +0.5%
Worst Sectors: Materials, Energy -1.1%