This Week's Takeaways From the Street

This was a busy week in regards to economic news. While retailers clearly didn’t carry the economy last month, the latest jobless claims data suggests that the jobs picture may not be as bleak as last week’s Unemployment Rate report claimed. More details on that in just a moment, but first let’s go over what should you take away from the past trading week.

  1. The first few weeks of earnings season are going to be crucial, and we’ll likely see a lot of changes in my Portfolio Grader stock rating system. Already, over the weekend I’ve revised my ratings for 55 of Wall Street’s top stocks. Find out which here.
  2. While gold prices have taken a breather on short-term strength in the dollar, the general expectation is that they will perk up soon enough. But before you call your broker to cash out of stocks and reinvest in gold, I have a much more attractive alternative for your money. Read on to see what it is.
  3. Surprise! The Fed has just released the minutes to its latest policy meeting, and the Central Bank is going to continue buying back bonds by the droves to spark economic growth. While this in itself wasn’t shocking, what did grab headlines was the fact that there is growing infighting among our economic policymakers. And you can bet this has big implications for Wall Street—full details here.
  4. It’s no secret that I’d been a big believer in the big AAPL for some time now. With its attractive yield, a $10 billion stock buyback program in the works and a top spot in the smartphone and tablet markets, what isn’t there to like? Well, I don’t like saying this, but there are some red flags that I just can’t ignore any longer. In today’s special feature, I cover the latest on the company that dominates the headlines and divides Wall Street—read more here.

The U.S. Jobs Market

Last week, jobless claims plunged 42,000 to an annual rate of 346,000. Economists had expected the measure to decline to 355,000, so these results were better than expected. At the same time, the four-week moving average ticked up by 3,000 to 358,000—reflecting the 28,000 spike in claims we had seen the prior week. This is good news—a complete reversal from what we saw last week. Not only that, it counteracts the results from last week’s dismal unemployment rate report, which found that only 88,000 payroll jobs were created in March. So while this is a positive change, these swings in jobless claims are making it difficult to gauge the state of the labor market.

The American Consumer

In March, retail sales declined 0.4%. This came below expectations; economists had expected retail sales to remain flat. This also represents the largest drop in nine months. Auto and auto parts sales declined 0.6% while lower gas prices also dragged down filling station receipts by 2.2%. Excluding auto dealers, building material stores and service stations, retail sales declined 0.2%. (I mention this because this “core” measure is used to calculate GDP growth.) While we all would have liked to have seen stronger retail sales, some perspective is needed her. Even accounting for March, this year so far, retail sales have accelerated 3.7% compared with the same period last year. This is a relatively strong turnout, given that Americans saw a bite taken out of their take-home pay thanks to the expiration of the payroll tax cuts.

The Inflation Picture

In March wholesale prices plunged 0.6%. This is the largest drop in 10 months and represented a deeper drop than the 0.2% decline forecast by economists. Most notably, energy prices gapped down 3.4%—the most dramatic decline in over three years. Meanwhile, food prices increased 0.8% while civilian aircraft prices advanced 0.7%. The core PPI, which excludes food and energy prices, rose 0.2%; this matched expectations. Over the past 12 months, wholesale prices have risen just 1.1% and core PPI has advanced 1.7%. So inflation remains tame at the wholesale level for now. In the meantime, I’m interested to see if this also applies to consumer prices—we’ll find out when the Consumer Price Index report is released this Tuesday.

The Private Sector

In February, wholesalers reduced their stockpiles by 0.3%. This represented the largest drop since September 2011 and came well below economists’ estimates of a 0.5% gain. Meanwhile, January wholesale inventories were revised down from the previously forecast 1.2% gain to 0.8% growth. The silver lining is that wholesalers also saw a 1.7% gain in sales. Petroleum sales rose the most in nearly five years while computer equipment and nondurable goods sales also rose. This mixed report has prompted some economists to reduce their first-quarter growth estimates. Wholesalers are taking longer to restock their inventories than expected. However, considering that economists still expect upwards of 3% GDP growth in the second quarter, it is too soon to panic over these changes.

In February, business inventories climbed 0.1%; economists had expected a 0.6% gain, so this underperformed expectations. This also represents a significant slowdown from the 0.9% gain in stockpiles we saw in January. This is slightly better than what we saw in the wholesale inventories report. This makes sense, because wholesale inventories account for about a third of total business stockpiles. Unfortunately, as I mentioned earlier, the weaker-than-expected inventories will probably weigh on second-quarter growth estimates. I’ll update you on the latest estimates as soon as they are released.

Have a nice weekend,

Louis Navellier

Louis Navellier

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