Bears Crushed by Retail Sales & US-China Trade Deal

01/17/2020 9:26 am EST


Adam Button

Co-Owner and Managing Director,

U.S. Retail Sales for December, which had some analysts worried, came out better than expected, reports Adam Button.

The much anticipated U.S. retail sales report exceeded expectations for December and helped bolster risk appetite mainly for U.S. stock indices (not European), especially as the U.S.-China Phase One trade deal was formalized.

The US-China trade deal inspired a mild 'sell the fact' type trade but the market largely ignored it. The details of massive pledged purchases of U.S. goods and services had leaked and none of the details were surprising.

US Consumers' Holiday Push

For 2019, US retail sales rose 3.6%, down from 5.0% in 2018. The "Control Group" retail sales series — mostly watched by economists as it excludes food services, car dealers and building materials to give a more accurate sense of demand — rose 0.5% vs. expectations 0.4%. The overall report was a vital positive surprise after retail giants Target (TGT), JC Penney (JCP) and Kohl's (KSS) reported weak sales and dire guidance.

The "Dept Store vs Consumers" argument shall remain for the remainder of the year. After all, Target is a company whose share price had doubled since January 2019 and was expected to report sales growth upwards of 4%. Company shares fell 7% but the bigger concern is that the U.S. consumer isn't as healthy as believed.

The Beige Book also looked at the consumer and said that overall sales were solid but regional commentary showed a mixed picture. Cleveland, Kansas City and Dallas regions were upbeat but New York and St Louis were more pessimistic.

A bigger question is whether that and a 2% growth outlook for this year justifies the elevated mood in markets. The Beige Book survey was mostly after the phase one handshake deal but there weren't any clear signs of an improvement in the mood. Further reason for concern came from aluminum giant Alcoa Corp. (AA). In October the company predicted demand growth in 2020 “would come roaring back” after a decline in 2019 but now forecasts just a 1.4% to 2.4% rise this year. The company is a decent bellwether for industrial sentiment.

Adam Button is co-owner and managing director of and a contributor at You can see Ashraf’s daily analysis at and sign up for the Premium Insights. Ashraf's Tweet on indices here.

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