The broad indices ended mixed after the U.S. Census Bureau said retail sales rose by 0.1% in January after increasing 0.5% in December. Excluding the auto sales, retail sales were up 0.2%, compared with a 0.3% gain in December. The increase in total sales matched the consensus estimate among economists, according to Zacks, while sales growth excluding auto sales came in ahead of the 0.1% increase expected by economists.
There had been some concern among economists that the rise in payroll taxes in January would damp consumer sales. The tax increase has certainly had a major effect, with the U.S. Treasury reporting on Tuesday that the federal government operated with a $3 billion budget surplus during January. Deutsche Bank analyst Dominic Konstam said in a report early on Wednesday that "the anecdotal evidence suggests that consumers have been more resilient than we had anticipated. At present, we anticipate +1.5% real GDP growth in the current quarter and this assumes consumer spending rises just 1%."
Bank stocks took a breather from a rally. The KBW Bank Index (I:BKX) was down 1% to close at 55.37.
Fifth Third Bancorp
Shares of Fifth Third Bancorp of Cincinnati have returned 6% this year, following a 23% return during 2012. The shares trade for 1.3 times their reported Dec. 31 tangible book value of $12.33, and for 9.5 times the consensus 2014 earnings estimate of $1.69 a share, among analysts polled by Thomson Reuters. The consensus 2013 EPS estimate is $1.65. Based on a quarterly payout of 10 cents, the shares have a dividend yield of 2.48%. During the fourth quarter, Fifth Third continued to grow its mortgage revenue, which totaled $258 million, increasing from $200 million the previous quarter and $156 million a year earlier, as the company continued to enjoy robust volume amid the refinancing boom. (Please see TheStreet's earnings coverage for a detailed discussion of the company's fourth-quarter results.) But at this point in the economic cycle, investors are concerned over how much of a decline in profitability the large mortgage lenders will see from lower gains on the sale of newly originated loans. With the market rate on 10-year U.S. Treasury bonds rising by about 40 basis points to roughly 2% over the past two months, mortgage-backed securities are also seeing higher yields.