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Bloomberg is reports that holiday retail sales
jumped 5.5%, the biggest gain in 5 years. Macy’s (NYSE:M) and Abercrombie
& Fitch (NYSE:ANF) were among the big winners, but it seems as though all the
upside has already been had in the retail stocks. My favorite, Kohl’s
(NYSE:KSS), has
done anything since its mid-November jump.
It should be clear from the retail sales numbers
that Americans have gotten more comfortable with the U.S. economic recovery. While we
certainly can’t say the economy is hitting on all cylinders, it has
stabilized and growth forecasts are on the rise.
Retailers report earnings toward the end of February
and I wouldn’t be surprised to see them rally into earnings.
*****One look at oil prices will tell you that
growth expectations are improving. Oil is firmly above $91 a barrel and
gas prices have topped $3 a gallon.
While there’s plenty of speculation that gas prices
will be a drag on spending and an impediment to GDP growth, the effects will take a
long time to work their way into a measurable effect.
For the foreseeable future, higher oil prices will
support higher stock prices as an indication of improving economic
growth.
*****China
raised interest rates by a quarter point on
Christmas day. Of course, we would prefer to see China let the yuan strengthen as a
way to slow inflation. But it’s clear that China is attempting to slow domestic
growth without impairing its export sector.
The question is: will this strategy work?
Oil and other commodity prices are saying
that China‘s
interest rate move is ineffective. And so is the U.S. dollar.
The dollar is down in early trade, while gold,
silver and other commodities are higher.
My sense is that a quarter-point hike for
China does not
accomplish anything. China‘s already raised reserve requirements for banks and it has very
high down-payment requirements for real estate.
*****Despite the good vibes from the economy and the
stock market, we should expect a correction for stocks sometime soon.
Debt issues in Europe and inflation in China
are the likely suspects to spark some
selling.
But the bottom line is that the S&P 500 has come
a long way since late-August.
We’ve seen the index test support at 1,250, and I
absolutely do not rule out another 20-30 points of upside, to 1,280 or
so. And most strategist-types are calling for a minimum of 10% upside for
the S&P in 2011.
I’m pretty sure we won’t get that +10% in
January.
Though there are plenty of stocks that look
attractive right now. And if you are nimble, I expect there are some good
gains to be had. Otherwise, my best advice is to have some cash and a
stock “wish list” ready.
Please send comments and question to [email protected].
Thanks.