After tumbling for three days straight, the market has flipped positive in response to strong U.S. retail sales data. Analysts had long thought that the American consumer would slump in Q3 and beyond.
“Slowing employment growth, the resurgence in Covid-19 infections, and the absence of additional federal relief payments prompted consumers to become more concerned about the current economic conditions,” said Richard Curtin, Surveys of Consumers chief economist.
“Those concerns were largely offset by continued small gains in economic prospects for the year ahead.”
Instead, consumers have been spending mightily. And that’s a big deal for a recovering economy.
“The economy continues to show pockets of strength, but those pockets need to widen. For those who still have their jobs, the economy has been healing,” explained Quincy Krosby, chief market strategist at Prudential Financial.
“The question is, if initial unemployment claims continue to rise, will we continue to see retail sales surprising to the upside.”
Krosby calls into question the biggest drain on U.S. economic optimism: the lagging labor market. Weekly jobless claims continue to exceed analyst estimates and the September monthly jobs report showed a significant slowdown in payroll gains.
That’s got investors worried that retail sales, which jumped 1.9% higher last month (vs. 0.7% expected), could soon slow as well.
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For now, however, it’s a major bullish indicator that suggests business is improving.
What’s also shifting sentiment this morning is an announcement from major drugmaker Pfizer (NYSE: PFE). The company said that it would apply for emergency use of its coronavirus vaccine once it surpasses certain safety milestones put in place. At the moment, Pfizer expects that to happen in late November.
If approved, the vaccine could be deployed shortly thereafter. The question then becomes whether people would actually be willing to take it.
It’s a bullish turn of events to be sure, but it would pale in comparison to a stimulus deal. In a town hall presentation on NBC last evening, President Trump said he wanted a “big, beautiful stimulus” package.
“Go big or go home,” Trump reiterated.
The ball remains squarely in House Speaker Nancy Pelosi’s court. Treasury Secretary Steven Mnuchin still doesn’t think an agreement will be reached before the presidential election, though. Neither does Senate Majority Leader Mitch McConnell.
“I don’t think so,” McConnell said when asked if Democrats and Republicans would compromise on the amount of proposed stimulus.
“That’s where the administration is willing to go. My members think what we laid out — half a trillion dollars, highly targeted — is the best way to go.”
But that doesn’t mean investors should count out a larger deal entirely. These days, anything’s possible.
And if Congress can settle their differences over the proposed bill, stocks should surge.
Even if the stimulus doesn’t actually “hit” until November or much later.