The Market Bull – March 11, 2019
The major averages mark solid gains to begin the week despite some disappointing data with retail sales showing a decidedly weak trend.
Retail sales advanced .2% in January, bouncing back from Decembers sharp decline. That said previous months were revised lower and the trend is noticeably down with 4 of the last 6-months showing negative growth. Strength was seen in, sporting goods and hobbies, building materials, and online sales. Total sales were up 2.3% on a year-ago basis.
Business inventories continued their sharp build in December following November’s short pause with a .6% gain. Wholesale and retail inventories both advanced, sales continue to fall down 1% for the month. This pushed the inventory to sales ratio up to a fairly high 1.38 months. The pundits in their usual manner offered up a variety of excuses, trade war, weather, government shutdown etc., for the soft sales figures but I’m not so sure.
The earnings season has been particularly weak this time around with the 4th quarter of 2018 marking the second consecutive decline in quarterly earnings in quite some time. 2 consecutive quarterly declines are hardly worth writing about, but, the 1st quarter of 2019 is also expected to feature declining earnings as well. Given that valuations are already painfully high, falling earnings will push them just that much higher.
One of the real catalysts to sharp real estate value losses during the Great Financial Crisis of the 2008-2012 period was the fact that a lot of loans were sold with teaser introductory interest rates that had to be refinanced within 5-years or so. Of course declining home values and 100%+ loan to value financing slammed the door, and unable to refinance or handle the payment reset, many a homeowner was sent careening into bankruptcy. Fast forward to the present and a similar dynamic exists with respect to corporate high yield debt as it was used extensively to prop up the markets and paper over declining sales and earnings in the last 10-years. With 3.3 trillion in corporate debt that needs to be refinanced between now and 2023, or 48% off the total outstanding. The sheer volume alone is likely to be problematic, especially in light of higher interest rates. Add falling earnings, significant political instability and a whole host of issues from trade wars to Brexit to complicate the situation, and we once again risk getting a harsh collective lesson in the hazards of excessive debt.
Standard and Poors 500 Index closed at: 2,783.30 up 40.23
NASDAQ finished the day: 7,558.06 up 149.92
Gold ended trading at: $1,293.40 down $5.90