Daily Brief - December surge in US retail sales

TLDR: Just when you thought consumer spending was about to take a back seat, December’s retail sales data came in with a bit of a plot twist. What does this unexpected uptick mean for the markets?

Rising 0.6% compared to the expected 0.4%, December's performance showcased the resilience of the US consumer. The surge was led by strong sales in motor vehicles and department stores.

Despite inflation and rising interest rates, spending has remained steadfast, supported by a solid labor market. While strong consumer spending is great for economic growth, it could also mean the Fed might hold back on anticipated rate cuts.

From a market perspective, consumer-driven companies might find their stocks looking a bit perkier. Toggle highlights a number of consumer discretionary stocks that are trading at cheap valuations and could be due for upside.

Secondly, with the Fed potentially delaying rate cuts, bond markets could see some volatility. And let's not forget, a strong consumer base hints that the feared recession might just be a ghost story.

However, the report also reveals some evidence of a spending slowdown. Sales in categories particularly sensitive to interest rate hikes, like electronics, appliances, and home furnishings, dipped. This suggests that the impact of the Fed’s policies is starting to ripple through, affecting consumer choices in high-value items influenced by borrowing costs.

Asset Spotlight: Speaking of a spending slowdown

Toggle analyzed 10 comparable instances in the past where Best Buy's stock experienced a decline. Historically, these declines have often been followed by further decreases in the stock's price over the next 6 months.

Additionally, Toggle observed a decrease in volatility for Best Buy's stock. Historically, such reductions in volatility have also typically preceded a decline in the stock's price over the following 6 months.

Market Movers: If rates stay higher for longer?

Here are the best and worst performing stocks on a median basis post historical 10 month rate pauses while above 5%:

The top 3 performing stocks:

Ticker: CF (CF Industries), with a 6-month return of 84.48%. Ticker: ALGN (Align Technology), with a 6-month return of 58.12%. Ticker: MA (Mastercard), with a 6-month return of 42.92%.

The bottom 3 performing stocks:

Ticker: AKAM (Akamai), with a 6-month return of -39.06%. Ticker: DFS (Discover), with a 6-month return of -15.83%. Ticker: IPGP (IPG Photonics), with a 6-month return of -15.03%.

Earnings Update: The first of energy earnings are here!

Schlumberger, known as SLB and recognized as the world's largest offshore drilling company, is poised for a positive earnings announcement set to be released before the market opens tomorrow.

The market is gearing up for a significant, double-digit year-over-year increase in the company's earnings, bolstered by higher revenues. This anticipated earnings report could offer a boost to the energy sector, which has been underperforming compared to the broader market

Discover how other companies could react post earnings with the help of TOGGLE's WhatIF Earnings tool.