Today's stronger-than-expected retail sales data provided what was missing from last Wednesday's big rally: a fundamental catalyst. Buoyed by the macro data, stock proxies rallied sharply early today, giving pause to those who believed last Wednesday was merely a one-day wonder.
Around 1:30 p.m. EDT, the
Dow Jones Industrial Average
was up 1.4%, the
higher by 1.7% and the
Furthermore, strong volume -- which was missing from yesterday's advance -- was evident today. As of 1:30 p.m., 831.8 million shares had traded on the
and 1.29 billion in over-the-counter activity.
The Commerce Department said retail sales rose 1.2% in April vs. expectations for a 0.7% gain. Sales excluding autos rose 1%, also exceeding expectations for a rise of 0.4%. Weekly chain-store sales told a slightly different story -- down 0.5% for the week ended May 11 -- but retail stocks were solidly higher at midday. Further aided by strong earnings from
, the Morgan Stanley Retail Index was recently up 2.7%.
As strongly as retail stocks were performing, they trailed gains sported by a host of high-tech sectors, as well as biotech. The Philadelphia Stock Exchange Semiconductor Index was lately up 5.8% after a bullish call from Robertson Stephens about
and ahead of
earnings, due after the close. Meanwhile, the Amex Biotech Index was up 4.8% after brokerages such as Thomas Weisel Partners claimed the group was oversold.
On the surface, it seems incongruous that biotech stocks would rally so strongly on a retail sales figure. But the data, which followed last week's strong productivity report and tame PPI, have caused some people to rethink their views about the possibility of a "double dip" in the economy. Similarly, recent market action has caused some traders to re-evaluate their holdings.
Notably, many of the groups that have been market leaders this year were laggards (or at least underperforming groups) today, including gold miners, health care, tobacco, homebuilders and small- and mid-cap stocks.
"People are just having a hard time,
and if they were lucky to be involved in some of those stocks, they've made profits and want to find another area," said Ned Collins, executive vice president of U.S. stocks at Daiwa Securities America.
There was evidence of this last Wednesday as well, which prompted Bert Dohmen, president of Dohmen Capital Research in Los Angeles to write in his
on May 8: "We shall now go through a short period of profit-taking in the majority of stocks that have done so well, and a rally in the stocks that have done so miserably."
I was unable to reach Dohmen today, but clearly, that trend of the
first being last and the last being first re-emerged today, and not just in the equity markets.
The dollar, which has recently weakened vs. major currencies, rallied in concert with equities following the retail sales data. Conversely, the U.S. Treasury market suffered with the benchmark 10-year note recently down 20/32 to 96 24/32, its yield rising to 5.31%.
On Friday, Dohmen wrote, "I think this
equity market has the potential to take off to the upside," noting that the losses last Thursday and Friday occurred on lighter volume than Wednesday's big ascent.
Still, skepticism remains high among some market participants, which isn't surprising given what's transpired in the past two years.
"Some people feel there's a chance we really may have something, but I just can't seem to bite that bullet," Collins said.
In addition to worries about rising unemployment, the trader recalled that the housing market has broken "before stocks bottomed" in previous cycles, "and the housing market is a long way from breaking." Furthermore, revelations such as the "fictitious trades" at
, down another 6.4% at midday, "makes you wonder how many more of those things are out there," the trader said.
Finally, he observed that equity valuations remain rich, with the S&P 500 trading with a P/E in the mid- to high 20s, depending on which standard of accounting you prefer. (The P/E is over 30 using Standard & Poor's new "core earnings" calculation.)
"That's what prevents me from jumping in," Collins said. Then again, the veteran trader admitted to being bullish by nature and declared: "I hope I'm wrong."
Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to
Aaron L. Task.