Last week, I rhetorically asked the question (see Nearing an inflection point: Watch the USD!):
Can the American consumer carry the entire weight of the bullish hopes of equity investors on her shoulders, especially if we start to see signs of stress in emerging market bond and equity markets?
Despite the better than expected consumer confidence numbers, we are seeing signs that the momentum of the retailing stocks are stalling out. Here is the relative performance of XRT, the retailing ETF, against SPY. On a relative basis, XRT is making a rounded top against SPY, which is not a good sign for the group:
The relative performance of RTH, another retailer ETF, against SPY is showing a similar pattern of making a rounded top:
To be sure, the Consumer Discretionary sector remains in a relative uptrend against the broader market:
New deal democrat recently noted that coincident indicators stalled in July, and with housing stocks also stalling out in relative strength, these are warning signs that the U.S. consumer is starting to struggle. If this last bastion of global economic strength starts to wane, the bullish case for stocks would only get weaker.
Disclaimer: Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). The opinions and any recommendations expressed in the blog are those of the author and do not reflect the opinions and recommendations of Qwest. Qwest reviews Mr. Hui's blog to ensure it is connected with Mr. Hui's obligation to deal fairly, honestly and in good faith with the blog's readers."
None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this blog constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or I may hold or control long or short positions in the securities or instruments mentioned.