Retail sales climbed by +8.8% in the 12 months through June, according to the release Friday at 8:30 a.m., by the Census Bureau. The news brightened the near-term economic outlook, and it sparked a +1.9% one-day surge in stock prices.
The sharp rally in stocks followed Wednesday’s worse-than-expected inflation release showing the Consumer Price Index (CPI) soared +9.1% in the same 12-month period through June. To be clear, the +8.8% retail sales surge, after adjusting for the +9.1% CPI, meant real retail sales in the past year were slightly negative -- down three tenths of 1%, and the stock market shot up nearly +2% on that news.
Retail sales are crucially important to U.S. growth. Seventy percent of U.S. growth is consumer-driven and retail sales reflect 30% of all consumer activity. So why would negative growth be positive news and drive a sharp one-day rally?
As we said in our weekly report two weeks ago, the worst of the economic news may already have been discounted in stock prices. No one can predict a market bottom, but the economy is not falling apart and it’s still possible that a recession may not occur.
The Standard & Poor’s 500 stock index closed this Friday at 3,863.16. The index gained +1.92% from Thursday and +0.93% from last Friday. A proxy of America’s global economic leadership, the S&P 500 is up +53.29% since the Covid-19 bear-market low of March 23, 2020, and down -21.55% from the January 3rd all-time high.