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 US consumer is starting to struggle. If this last bastion of global economic strength start to wane, the bullish case for stocks would only get weaker.
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.”
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