Small Is Big

Small is big.  Stocks had a mixed close yesterday as investors took a breather from the big gains put up in the prior sessions.  Small caps did not get the memo and closed in the green for a third consecutive high, flashing a positive signal for the road ahead.




Shopping, dropping?  Nope, shopping is not dropping, and that’s a good thing.  If you are a regular reader you know that consumers make up more than 2/3 of GDP!  The more stuff we buy, the faster the economy grows because everyday consumers are well… important. To be a bit more clear, it is more than just stuff, it is also services like restaurants and bars.  As one might guess the pandemic, which caused lockdowns and unemployment, has clearly had a negative impact on consumption. Unemployment is certainly a factor as you can’t spend what you don’t have… technically.  The CARES Act provided a much needed stimulus, boosting unemployment benefits for millions.  Lockdowns affected consumers’ ability to spend money, even if they had it.  Retail at restaurants, bars, movie theaters, entertainment venues, travel, etc. were literally shuttered, if not shunned in the early pandemic days.  We can clearly see the effects of those negative forces on retail sales in April, which fell by -14.3% for the month.  Consumers are resilient and they were able to find other ways to spend their dollars in lockdown, most notably online. The torch bearers for that world are Amazon and Netflix.  Retailers too are resilient.  Many shuttered retail establishments began curbside pickups and accelerated their web-based outlets.  Food and beverage services were in an unfortunate position during the height of the lockdowns.  Still, with changes in formats and the arrival of stimulus checks we saw a massive recovery in retail in May, which jumped by +18.3%. The summer month’s became a lifeline to restaurants which began curbside dining and, in some places, relaxed restrictions meant limited indoor dining and drinking. June saw retail sales grow by another respectable +8.3%.  By July consumers were settling back into almost normal spending habits as malls began to reopen for limited traffic and even movie theaters in some states began running flicks once again. In that month, retail sales grew by a more normal +1.1%, a growth figure that was more akin to pre-pandemic expansion.  All through that period unemployment also improved somewhat, having spiked as high as 14.7% in April, it slowly fell to 8.4% in August.   More people back on the job meant more spending and August retail sales grew by +1.4%. September brought another increase in retail sales, up by 1.6%.  In October, unemployment benefits and last bits of stimulus began to wear out and local virus spikes caused some tighter restrictions to be re-instituted.  Old stimulus wearing out, no new stimulus, increased restrictions, and spiking virus cases would surely impact retail sales.  Sales for last month grew at just +.03%.  So, it is still growing, but not quite as fast as earlier in the recovery.  Delving into the figure, almost all categories fell last month.  Hardest hit were clothing/accessories along with sporting goods/hobbies/bookstores which both pulled back by -4.3%.  Food Services/Drinking slipped by only -0.13% after growing by +2.39% in September.  The biggest gainer was non-store retail (AKA online shopping) which grew by +3.1%. So, here we are with still no new stimulus and a significant spike in virus positivity which has led to new restrictions.  Colder month’s ahead will certainly affect outdoor dining as well as building projects. With vaccinations around the corner better days are ahead but still months away.  Also months away may be a new stimulus package as the lame-duck period offers very little incentive to lawmakers to act before the inauguration.  With unemployment benefits along with eviction and foreclosure moratoriums ending for many next month, we may be in for some cold days ahead.




Stocks had a mixed close yesterday with large caps lagging and small caps leading. The S&P500 fell by -0.48%, the Dow Jones Industrials slipped by -0.56%, the Russell 2000 Index rose by +0.37% to another new high, and the Nasdaq Composite Index traded off by -0.21%.

Bonds rose and 10-year treasury yields fell by -5 basis points to 0.85%.




– Housing Starts (Oct) may have risen by +3.2% compared to last month’s +1.9% advance.

– Building Permits (Oct) are expected to have risen by +1.4%, slower than September’s adjusted +4.7% growth.

– Today’s Fed speakers include Williams, Bullard, Bostic, and Kaplan.

– The Treasury will sell $27 billion 20-year bonds.

– This morning Target and TJX beat estimates while Lowe’s missed.  After the bell earnings include Nuance, Sonos, L Brands, and NVIDEA.



daily chartbook 2020-11-18


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