(Please enjoy this updated version of my weekly commentary from the Reitmeister Total Return newsletter).

The monthly Retail Sales report came out this morning a few notches worse than expected at -1.1%. Couple that with my note on Friday about how shockingly bad the Consumer Sentiment report was and you have some extra questions marks floating around about the health of the consumer.

Yes, that notion hurt the overall market on Monday. In particular all the consumer oriented names got pounded. Not even safe haven names like Home Depot and Target were spared the lashings.

Reity, should we be worried about what this means for the overall economy and stock market?

Right now my assessment is no. This is not the beginning of anything ominous. And long term bull market still very much intact.

However, this notion of potentially lower consumer spending does deserve our attention to see how it evolves from here just in case there are further signs of momentum to the downside.

First, let’s remember that the retail sales miss was in the month over month view of activity. However, in the year over year view sales were expected to be 11.5% higher and yet it came in much more robust at +15.8%. Hard to see that in a truly negative light.

Next we have to dial in on the specifics of the month to month drop. -1.1% is not great. But as it turns out the majority of the drop was consumers switching more from the purchase of goods back to services as the economy continues to reopen. This is not a bad thing in the long run as we need both goods and services at a strong level.

The point is that services in general cost less than goods. So that temporary shift in spending should not have a lasting effect.

Most important, as a guy with an economics background, I can tell you that the best predictor of future economic activity is the direction of the jobs market. In this case we are rapidly bringing people back to work. Plus there are MANY more job openings than applicants in many cases. This creates a double barreled gain for the economy in that more people are getting back to work… which leads to more income… which leads to more spending.

Gladly those who have jobs have fewer concerns about losing their job in the future which increases the likelihood that they will spend extra money vs. save. In addition, if companies find it increasingly difficult to hire new employees, then those companies are likely to pay a higher amount to get employees to come onboard. This creates wage inflation which also leads to more money in the hands of the consumer…and yes, more consumer spending.

Net-net, I do not believe that the recent data is truly the start of a downturn in the economy. This will likely prove to be a blip as the more telling jobs data points to more income/spending down the line. And yes indeed I would have no problem buying the dip in consumer oriented names ( in fact, 6 of 14 positions in the Reitmeister Total Return portfolio fit that profile.).

The logic of this point seemed to be proved out in the second half of the Tuesday session as investors did buy the more extreme mid day dip leading to a less painful close for stocks. I sense there will not be much more downside follow through from this news.

That does not mean that we are ready to embark on the next 5-10% bull run. I sense this market will continue to be volatile filled with periods of sector rotation and outlook uncertainty.

Yet with the economy continuing to heal from the coronavirus + low rate environment it is hard to find a better place to invest than the stock market. This, more than anything else, should keep you tilted in a bullish posture and ready to enjoy the gains whenever the market is finally ready to move forward.

What To Do Next?

The Reitmeister Total Return portfolio has beaten the market by a wide margin this year.

Why such a strong outperformance?

Because I hand-pick the very best stocks from across the POWR Ratings universe. In fact right now there are 12 Buy rated stocks and 2 ETFs in the portfolio ready to excel in the days and weeks ahead.

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Wishing you a world of investment success!

Steve Reitmeister

…but everyone calls me Reity (pronounced “Righty”)
CEO, Stock News Network and Editor, Reitmeister Total Return

SPY shares fell $0.50 (-0.11%) in premarket trading Wednesday. Year-to-date, SPY has gained 19.54%, versus a % rise in the benchmark S&P 500 index during the same period.

About the Author: Steve Reitmeister

Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks. More...

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