It was another impressive week for stocks, which capped off last Friday with the release of September retail sales.  Even though the headline number came in slightly below consensus, the month-to-month increase was the biggest rise in more than two years.

Many components got a boost from replacement-driven demand in the aftermath of Hurricane Harvey and Irma as we saw an amazing increase in monthly auto sales numbers. This data leads me to believe that the bump in demand is more than just replacement.

There were impressive gains in building materials and clothing, and furniture appears to be slowing.

September Retail Sales	M/M	Y/Y
Headline	+1.6%	+4.4%
Motor Vehicle	+3.6%	+4.0%
Furniture	-0.4%	+1.7%
Electronic	+1.1%	-4.4%
Building Materials	+2.1%	+10.7%
Grocery Stores	+1.0%	+3.0%
Health care	+0.4%	+0.4%
Gas Stations	+5.8%	+11.4%
Clothing	+0.4%	+1.1%
Sporting Goods	-0.2%	-5.5%
Department Stores	-0.4%	-0.5%
Internet	+0.5%	+9.2%
Restaurants	+0.8%	+2.7%

 

Historic Confidence Years Behind

Then there’s consumer sentiment, which surged to its highest level since 2004.  More impressive was the 19% jump in the index of consumer expectations.  People are feeling a lot better about the future, which carries a self-fulfilling aspect.  

Consumer Sentiment University of Michigan	2017	2017	2016	M-M	Y-Y
Index of Consumer Sentiment	101.1	95.1	87.2	+6.3%	+15.9%
Current Economic Conditions	116.4	111.7	103.2	+4.2%	+12.8%
Index of Consumer Expectations	91.3	84.4	76.8	+8.2%	+18.9%

 

However, I want to point out that the Dow Jones and Consumer Sentiment both reached all-time high points in January 2000. Since then, the Dow, having endured two major crashes, is up 95%, while consumer sentiment is still down 10% 17 years later.

This knocks out the notion of irrational exuberance.  In fact, it underscores the pangs of frustration for Main Street and why in the midst of an obvious uptick in the economy, so many remain unconvinced.

The gist is that consumers have been guarded for almost two decades. The so-called wealth effect of higher markets couldn’t overcome the pain and resentment from big stumbles under both political parties.

That might be changing and if it does, it would be monumental and certainly lead to more than a 3.0% Gross Domestic Product (GDP) growth.  A key for any successful economy is the necessity for people to believe the self-fulfilling prophecy thing.

It’s happening and perhaps faster than anyone realizes.

Market Exuberance

Last Friday, the NASDAQ closed at an all-time high as big tech names have regained momentum, led by Netflix (NFLX) that reported earnings after the bell.

NASDAQ is an unstoppable juggernaut and after a pause and kicking the tires on value momentum buyers and desperate money managers, they are plowing back into the hot index.

Wall Street has been so wrong on this stock for so long that everyone is bullish.  In the past two weeks; four upgrades, including Goldman Sachs (GS) that’s hiking its target to $235.

There were upgrades on Google/Alphabet (GOOG) and Amazon (AMZN) last week as well, including the following:

NFLX

• 10.13.17: Goldman Sachs (GS) reiterated its buy to target $235
• 10.12.17: Stifel Financial (SF) hiked target to $230
• 10.11.17: Morgan Stanley (MS) hiked target to $225
• 9.27.17: Wells Fargo (WFC) upped its rating to outperform

GOOG

• 10.11.17: Credit Suisse Group AG (ADR) outperformed its target by $1,350
• 10.2.17: Oppenheimer Holdings (OPY) raised its target to Outperform 

AMZN

10.12.17: Atlantic Equities new target is $1,250

Today’s Session

In addition to corporate earnings (10% of S&P 500 components report this week), there is a serious buzz about the move in metals.  Steel took off last week in part to revelations on Kobe Steel.  Japan’s third largest steel maker is in the midst of a scandal about the quality of steel sold to the global market. 

There’s also greater signs of sustained economic growth in China, the latest example is this morning’s PPI report showing an increase of 6.9% against consensus of +6.3%.  That news sent copper +$282 to $7,156; its first trip through $7,000 in three years.

Note: this morning Longbow is out with negative comments on inventory and pricing at US Steel (X), so it will be interesting to see if the stock can hold pre-market gains.

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