The Tale of Retail Sales

young with shopping bags shopping and shopping mall

On Friday last week, we saw December’s retail sales come in under expectations with a drop of -1.9% versus November. This was given as the reason behind the market pulling back, though the S&P ended the day positive after some volatility. So let’s dive a little deeper into the numbers to see what we can glean. While the monthly retail sales were off slightly, we can see from the chart below that on a year-over-year basis they were still up +16.9% from December 2020. We talk a lot around here about the importance of the rate of change, or the second derivative of growth, the growth of growth. This metric slowed for the first time in the past 5 months. How long can we reasonably expect to see +15% year-over-year growth rates? The comparisons to the past year are going to get much harder in March when we see that final spike of spending from the government stimulus stop being factored into the year-over-year change.

Backing out and looking at the 10-year trend in retail sales, we can see that the pandemic spending shifted demand to a different level. This was caused by a change in consumer behavior, away from services and into goods. We all became voracious consumers in the wake of the pandemic and subsequent stimulus. This shifted the established trend line upwards significantly (see the chart directly below).

Pulling back even further, we can see in the chart below that it took the pandemic and stimulus to get us back above the trendline for retail sales set prior to the Global Financial Crisis of 2007 to 2009.

Why is this important? We have spent our way into an inflationary cycle. After the Global Financial Crisis, nothing the Fed did boosted inflation. Now, we have as a country produced inflation by spending, both by the government and the private sector. Many of the forces behind the supply side of inflation continued to moderate in December.  Those forces are not over, but they are moderating and many economists see those same factors turning deflationary before 2022 is over.

We pointed out last week that the US government is going to put roughly $1 trillion less into the economy in 2022 vs 2021. This itself can cause a change in the spending patterns of individuals. The Federal Reserve is looking to tighten monetary policy with rate hikes to curb inflation. The market is going a little aggressive by now pricing in 4 rate hikes this year. But they are hiking into a slowing growth cycle. When inflation begins moderating and growth slows we will see if all of the suggested rate hikes actually happen or if the Fed is able to get away with fewer rate hikes than are currently predicted in 2022. The global rebound does not appear as fragile this time as it was after the Global Financial Crisis, but that does not mean that the market is going to like having all of the monetary and fiscal taps turned off all at once.

Model Update

On Tuesday, January 11th, the EWM Investment Solutions Asset Allocation models adjusted their exposures to developed international equity markets by adding a new fund designed to better track their benchmarks. 

On Friday, January 14th, the fixed income portion of the Asset Allocation models increased its portfolio duration by adding funds focused on long-term Treasuries. Also, the Equity Dividend model added two new holdings in the semiconductor industry. 

There were no other trades in the remaining EWM Investment Solutions models during the week ending on January 15th, 2022.  The major equity market sectors remain in a long-term favorable trend, and the Asset Allocation models are near their maximum allowable equity exposure with domestic stocks favored over international shares. 

Performance is no guarantee of future results.   Trend signals are proprietary research of EWM Investment Solutions, a wholly owned subsidiary of Executive Wealth Management, LLC. Data source for returns is FactSet Research Systems Inc. This chart is not intended to provide investment advice and should not be considered as a recommendation.  One cannot invest directly in an index. Executive Wealth Management does not guarantee the accuracy of this data.

Quote of the Week

The stock market is supposed to be forward-looking. This past week it was rocked by the minutes of a meeting that ended more than three weeks ago.

The introduction to Ben Levisohn’s most recent article in Barron’s about the market’s reaction to the release of the minutes of the Federal Reserve’s December policy meeting.

EWM News

In the video below, EWM founder and director Bert Herzog offers financial insight for 2022 on the TD Ameritrade Network show “Market on Close” with host Oliver Renick.

Congratulations Jennifer!

After two years, eight comprehensive courses, and tons of hard work, our very own Jennifer Ralston has earned a Chartered Financial Consultant® designation.

Finding a balance between completing the ChFC® program, working full-time as a client associate, and being a mother of two (ages 11 and 9) seemed a bit challenging at first. Nonetheless, Jennifer persevered and completed the program, officially earning the designation in January 2022. She not only has 20 years of industry experience but is now equipped with the confidence to effectively transition into her new role and build holistic relationships with new clients.

Thank you, Jennifer, and congratulations again!

Executive Wealth Management (EWM) is a Registered Investment Advisor with the Securities and Exchange Commission. Reference to registration does not imply any particular level of qualification or skill. Investment Advisor Representatives of Executive Wealth Management, LLC offer Investment Advice and Financial Planning Services to customers located within the United States. Brokerage products and services offered through Private Client Services Member FINRA/SIPC. Private Client Services and Executive Wealth Management are unaffiliated entities.  EWM does not offer tax or legal advice. Please do not transmit orders or instructions regarding your accounts by email.  For your protection, EWM does not accept nor act on such instructions. Please speak directly with your representative if you need to give instructions related to your account. If there have been any changes to your personal or financial situation, please contact your Private Wealth Advisor. 

Returns are calculated as indicated below with reinvested dividends not considered except for the Barclays U.S. Aggregate Bond Index. Data source for returns is FactSet Research Systems Inc. The London Gold PM Fix Price is used to calculate returns for gold.

1 Week = closing price on January 7, 2022 to closing price on January 14, 2022

 1 Month = closing price on December 14, 2021 to closing price on January 14, 2022

 3 Month = closing price on October 14, 2021 to closing price on January 14, 2022

 YTD = closing price on December 31, 2021 to closing price on January 14, 2022

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