Consumer speed bumps mean we all need to drive carefully.
While not stunning developments, each indicates a degree of softness in consumer behavior. They also reinforce consensus estimates for gross domestic product to remain below 3 percent through next year, based on the 88 economists tracked monthly by Bloomberg. It's the "new normal" first described a year ago by Pacific Investment Management Co. founder Bill Gross, where the U.S. economy still isn't accelerating at the rate typically seen after recession, and sub-par growth is likely to remain for some time (hence the Fed's low rates for longer, by the way).
Citigroup equity strategist Tobias Levkovich offers his own interpretation in a piece entitled, "No Humor in Consumer." We share his key takeaway:
Macy's earnings kick off a two-week run during which 31 retailers will report fourth quarter results. Analysts have already lowered their estimates for 11 of these companies. We share the list, and we note that at least three analysts lowered estimates at each of these companies.
Lest there be any doubt about the market's take on retail softness, retail has clearly lost its edge on the S&P 500.
Until we get through what is likely to be a choppy reporting season, we are inclined to agree with Levkovich and to step aside from owning retail as a group. We also note his observation regarding valuation: The group trades an an average trailing price-earnings ratio of 25.2.