Market Insights: Retail Sales Boom

Macroeconomic and Market Developments:

• Stock markets in North America were up again this week. In Canada, the S&P/TSX Composite index was up 0.64% and in the US, the Dow Jones was up 1.19% and the S&P 500 was up 1.36%.
• The Canadian dollar was up slightly this week, closing at 79.95 cents compared with 79.8 cents last Friday.
• Oil prices were mixed this week, with US WTI closing up this week at $63.10 vs $59.40 last Friday and the Canadian WCS flat this week at ~$49.00.
• Gold prices were up this week, closing at ~$1,776 vs ~$1,743 last Friday.
• On Monday, tech giant Microsoft (MSFT) announced an agreement to buy speech recognition company Nuance Communications (NUAN) for $56 per share, about 23% above its closing price Friday. The deal is worth about $16 billion and about $19 billion including debt. This acquisition represents Microsoft’s largest deal since it bought LinkedIn for more than $26 billion in 2016.
• Air Canada announced that it has entered into a series of debt and equity financing agreements with the Government of Canada, which will allow Air Canada to access up to C$5.879B in liquidity through the Large Employer Emergency Financing Facility (LEEFF) program. As part of the financial package, Air Canada has agreed to a number of commitments related to customer refunds, service to regional communities, restrictions on the use of the funds provided, employment and capital expenditures.
• More US inflation data was released this week, with the Consumer Price Index (CPI) showing an increase of 0.6% in March, above the consensus expectations of 0.5% (up 2.6% from a year ago). The 0.6% increase in the March CPI ties for the largest single-month increase going back to 2009. Energy prices rose 5.0% in March, while food prices increased 0.1%. The "core" CPI, which excludes food and energy, rose 0.3% in March, coming in above the consensus expectations of 0.2% (core prices are up 1.6% from a year ago).
• US-based cryptocurrency trading company Coinbase completed its direct listing on the NASDAQ on Wednesday, trading under the symbol COIN. The stock finished its first day of trading at $328.28. A direct market listing is an alternative to the traditional IPO, whereby a company doesn’t sell any new shares to the public (i.e. raise new capital), but instead lists its existing shares on a market to give existing owners liquidity to sell and new investors the opportunity to easily buy into the company.
• Canadian ETF provider Horizons released a new Inverse Bitcoin ETF this week, under the symbol BITI. For investors who believe that Bitcoin will fall, this allows investors the opportunity to take advantage of a drop in the price of the cryptocurrency.
• Total global cases of COVID-19 finished this week at 139.5 million, with the total deaths at 3.0 million. In Canada, total cases now stand at 1,087,152, with active cases at 80,201. In Alberta, total cases are 164,531, with active cases of 15,569.
• For a deeper dive, the US investment company First Trust has put out a US COVID-19 Tracker. Click here: COVID TRACKER

Charts of the Week:

The US Retail Sales report came in this week for March and let’s just say it bounced back vigorously as stimulus checks were spent and vaccine rollouts accelerated, after a terrible report in February when freak weather shut down several areas of the south. Retail sales are important as they are a significant component of GDP. This report, along with some other strong economic data this week, helped to push markets to new all-time highs including the S&P/TSX Composite. There is no way to describe the recent moves higher in retail sales other than incredible. As you can see in the following chart, it took 40 months for US retail sales to make a new high following the pre-Financial Crisis peak of 2007. This time around, we only suffered through a 5-month drought without a new high. In fact, retail sales have bounced 50% from the April 2020 low. Even more shocking than this is that retail sales are not only above pre-COVID levels, but they are more than 17% above the peak from just 14 months ago. In addition to being at a new high, the second chart shows the 14-month rate of change of retail sales since 1992. Although the post-COVID decline in sales was the steepest on record, on the flip side the current 14-month gain is now the highest on record. It is definitely strange to admit that without COVID, and the resulting monetary and fiscal stimulus, there is almost no way that retail sales would be at the levels they are now.

Source: Bespoke Investment Group

Moving on to a more obscure indicator, we also wanted to highlight that the S&P 500 did not close beneath the December 2020 low during the entire first quarter of 2021, leaving the December lows untouched and in the rear-view mirror. In the industry, this is known as the ‘December Low Indicator’ which was first discovered by Forbes columnist Lucien Hooper in the 1970s. When this happens, the return for the full calendar year has historically been extremely strong. As the following chart shows, of the 35 times this has occurred since 1950, the market has posted an average return of 18.4% (way above average) and positive 94% of the time.

Source: LPL Research, FactSet 04/12/2;, all indices are unmanaged and cannot be invested into directly, Past performance is no guarantee of future results

Sources: CNBC.com, Globe and Mail, Financial Post, Government of Canada, Johns Hopkins University, oilprice.com, Tony Dwyer, Canaccord Genuity, Bespoke Investment Group, LPL Research, FactSet