Retail sales stumble, treasury rates elevate, and inflation expectations hit 10-year highs

Also, JPM posts it's earnings report and investors panic sell

Retail sales have seriously disappointed the market this morning. The consensus estimate was 0% month-over-month change and they came in at -1.9%. It signals the end of 4 straight months of strong growth. The biggest declines were seen in nonstore retailers (-8.7%), furniture stores (-5.5%), sporting goods (-4.3%), clothing (-3.1%), electronics (-2.9%), and general merchandise stores (1.5%).

Pressure shortages and port backups led to an earlier Christmas shopping season this year. This could account for the drop in sales. Inflation could also be a factor. We could be witnessing the moment the consumer breaks under the weight of inflation. This would be a strong signal that the economy is slowing and stagflation is coming.

Consumer sentiment, coming out of the University of Michigan, will begin to play an important role in signaling where the consumer is at. Unfortunately, this isn’t looking good either. The latest data that came out was today’s report. It showed consumer sentiment dropping to 68.8 in January. This is the second lowest level in a decade and below the market forecast of 70.

In addition to the sentiment report, long-term (5 year) inflation expectations also hit a 10-year high.

One-year expectations also increased, from 4.8% to 4.9%.

All this bad data is being thrown at the “data-driven” Fed. To fight inflation, they’ll need to raise rates. To fight a stagnating economy, they’ll need to lower rates and increase their balance sheet. This has them trapped as they now look to be raising interest rates with a recession on deck.

However, one of the smartest men in the room is stating that the Fed will raise rates “six or seven” times in 2022. Bonds across the spectrum saw rates rise on the comment. Jamie Dimon of JP Morgan announced today during his company’s earnings call that he believes the Federal Reserve will raise its benchmark interest rate as many as “six or seven” times to fight rising inflation. “My view is a pretty good chance there will be more than four” interest rate hikes in 2022.

In addition to Jamie’s prediction, JPM also posted their earnings and investors were not impressed. JPM’s stock was down 6%, which I believe is an amazing buying opportunity. The bank beat it’s earnings estimate but investors got spooked at how expensive it is to run one of the world’s most connected banks. Guidance for 2022’s expenses came in at $77 billion versus an estimate of $73 billion. Look for investors to realize their mistake and pile back into JPM as all well-run businesses are raising pay rates to compete for the best talent.