Consumer Stocks: Are They Rolling Over?

| About: SPDR S&P (SPY)

Summary

Inflation will remain the Fed's top priority in 2016.

Overall, the equity markets remain quiet, with consumer stocks struggling of late. GDP growth tomorrow will be key to watch.

Take a look at platinum today.

Top News

"Near-term risks to the economic outlook have diminished." This quote was taken right out of the FOMC press release yesterday afternoon. What does this mean? Some seem to think it implies that the Fed has taken a slightly more hawkish tone. To me, it means that the world isn't falling off a cliff. To me, it does not mean the Fed is taking a more hawkish view.

"Inflation has continued to run below the Committee's 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months." This quote is also taken right out of the FOMC press release from yesterday. This paragraph is what matters, and all that matters in my opinion. Inflation or the lack thereof, which quite frankly, in my opinion, is a serious problem. Let the graphs be our guide.

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Both PCE and CPI Y-o-Y changes can barely stay at 2%, let alone get over it. It's because energy prices are weak, you say?

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Food & Beverages, Down.

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Healthcare: Up Slightly

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Education: Down

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Recreation: Down and hardly even 1%

Should I go through more slides or did I prove my point? These indicators of inflation are the reason why the Fed will not raise rates in 2016. What does this mean for markets? It means rates will continue to stay low and most likely continue to head lower. Which should continue to be a positive for equity prices, specifically higher yielding ones.

Equity Market

Let the boredom continue. The S&P 500 or the SPDR S&P 500 Trust (NYSEARCA:SPY) is down slightly again, guess where it is? Give up 2162 as of 10:45 AM. Yep, still stuck in the same range.

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I don't even know how to summarize this, other than amazing. The machines, meaning the Algos, are working overtime to keep things in line. The balance will shift, I just have no idea when.

Sector Spotlight

The Consumer Discretionary Select Sector SPDR (NYSEARCA:XLY) is trading down today by about 50 bps. Not surprised by this, yesterday we were focusing on the Consumer Staples (NYSEARCA:XLP). The weakness in the auto stocks today, led by Ford (NYSE:F), certainly isn't helping the XLY.

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The chart above is the XLY. The Chart below is the XLP.

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Looking very similar. Is this perhaps a sign of a slow-down in consumer activity? Remember the market is always forward thinking. Let us hope that is not the case, since we do live in a consumer-led economy.

Currencies

The BOJ announcement comes tomorrow, what does the market think? Not much will happen. Why? Look at the yen. It strengthens yet again, today down another .66 to 104.71 vs. the dollar.

Commodities

A new one to look at platinum, up $22.40 to $1147.60. This move today is kind of surprising to me, given the Ford weakness. For those of you who do not know, platinum and its sister metal palladium are both industrial precious metals, used mostly to control emission in cars, through catalytic converters. Platinum's performance over the past few years has been terribly impacted, in my opinion, by a stronger dollar. Price was high at approximately $2000 in 2011. It is certainly a metal to bear in mind should we see dollar weakness. $1200 doesn't seem too far-fetched at this point.

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Yield

The ten-year yield is up slightly today, one bps to 1.52%. Nothing really to speak of here today.

Election 2016

The latest Rasmussen Report has Clinton back in the lead 43 to 42 vs. Trump. However, the Real Clear Politics Average still has Trump up 45.6 to 44.7. President Obama had his turn to talk last night; tonight is Clinton's turn.

Upcoming Events

Tomorrow will be our first look at 2Q GDP and Chicago PMI. If you want to get a sneak peak at GDP, go to the Atlanta Fed website and check out GDP Now. It gives a forecast of real GDP Growth; the last forecast is showing 1.8% for 2Q.

Key Takeaways

Inflation remains a serious concern and will continue to remain the Fed's top priority. Overall, the equity markets remain quiet, with consumer stocks struggling today. GDP growth tomorrow will be key to watch.

One final note, it will be interesting to watch how shifts in the Presidential polls influence trading in certain sectors, biotech being one of them.

Have a great rest of the day!

Mike

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.