Market comments for May 26th

Initial Jobless Claims for the week of May 21st unexpectedly rose to 424K, while expectations were for only 400K, and the previous week's data was revised higher from 409K to 414K. This recent rend over 400K is going in the wrong direction for a sustained recovery, but the Futures market seems to be shrugging off the news. Dow Futures are up in premarket +21 points for the Dow.

Next Thursday we will see what these 4 weeks of numbers back above 400K Initial Jobless Claims ha done for the May Unemployment rate, but I suspect it is going to tick up to 9.1%.

The 3 Month chart of the Dow below, shows that, while the market gained yesterday, we are still below the 50 day Moving average. Notice yesterday's volume was lower than Tuesday's volume. On a rising day, if you are a Bull, you want the volume to exceed the previous down days.

GDP for the 1st Quarter came in again at only 1.8%, which is far below what is needed for a sustained recovery. I think the facts are starting to emerge that the Fed's QE2 has not done much more than to keep us from sliding back into a recession, but just barely this past year.

European markets are mixed this morning, so that it seems their debt issues don't appear to be taking down their markets today, so we may follow suit. There is less than 0.5% movement in any of the European exchanges at this time.

Monday the markets here are closed, as it is the Memorial day weekend. And remember this about the debt level, it has not been resolved. Politicians on both sides seem to be locked in their positions, with Republicans saying they will not accept any tax increases as part of debt reduction and the Democrats saying they will not accept any reductions in the debt regarding entitlements without some tax increases. All this while the clock is ticking for our government to face default by August. What madness!

Where is the economy headed? Guess!

This week we had Retail Sales reported as I mentioned in the previous post, but I didn't spend much time discussing it and looking at the recent trend. Before I get into the data, I thought I would comment on why Retail Sales are an important metric to determine where the economy is headed.

The reason is because the Consumer represents 70% of our economy and when they are spending the economy is growing and when they slow the pace of spending, the economy can grind to a halt. It has been said many, many times, the economy has been sustaining "moderate" growth. Several posts ago I said when you see the word "moderate", substitute "slow" growth. So looking at Retail Sales trends give us a sense of the Consumer and the economy. Let's look at the recent trend.

Retail Sales for February was 1.3%
Retail Sales for March was 0.9%
Retail Sales for April (reported yesterday) was 0.5%

Do you spot a trend?

One other piece of data, which I like to look at is Consumer Debt and specifically Revolving Credit from Credit cards. Here is the data starting in 2010.
Q1 2010 840.1
Q2 2010 826.2
Q3 2010 806.9
Q4 2010 800.7
Q1 2010 796.1

Do you spot a trend?

The Consumer is trying to pay down debt it seems and is spending less on Retail Sales. And while prices of Gasoline have increased significantly, the Consumer continues to feel the pain.

So when Fed. Chairman Bernanke says we are in a "moderate recovery", you may be hearing soon that the economy has "stalled", which is another word for going nowhere!

Three days this past week the Dow was up and only 2 days down, but the Dow finished the week down for the entire week.