Perception says consumer spending, a linchpin of GDP growth, is beginning to accelerate. If this were the case, retail stocks would be leading the stock market rally. Retail stocks, however, have been under performing the stock market since November 2011 (chart). This is a negative divergence.
Chart: Retail Stocks to S&P 500 Ratio
Unconfirmed rallies, while dangerous, can last for weeks/months/years. The longer the disconnect lasts, the more severe the adjustment will be when reality finally breaks the back of perception. In other words, but the power of the cheerleaders, but never lose sight of the message of the market.
Headline: U.S. retail sales climb 1.1% in February
Retail sales advanced 1.1% in February to mark the biggest gain in five months, the Commerce Department said Wednesday. Economists polled by MarketWatch expected retail sales to jump 0.7%.
The figures suggest that consumer spending — the linchpin of the economy — is holding steady despite a spike in gasoline prices and higher payroll taxes in 2013. Many economists worried that spending would sag early in the year and act as a drag on U.S. growth
Headline: The wealth effect might be shrinking
The Dow keeps hitting all-time highs and home prices are rising.
But many Americans do not feel any richer. That could be bad news for the economy.
"Consumers may be skeptical about their wealth," said Mark Zandi, chief economist at Moody's Analytics, in a research note.
In the past, consumers have spent more when stocks and the value of their homes were climbing -- even if they don't plan to cash out on those investments any time soon.
The open forum model requires traffic to succeed. Traffic will be driven by creative and thought-provoking content designed to shed a unique perspective on the complex world investing. Effort, while easy, needs reciprocation. As soon as ad revenues, either passive or active, and/or donations stop for more than a week, effort will shift from an open forum to the privately-driven, subscription based model. Paypal, a leading provider of secure online money transfers, will handle donations. Thank you for your contribution.