Gold prices settled slightly lower after a disappointing retail sales report. U.S. stocks build on gains from yesterday as S&P 500 and DJIA close at record levels. Gold last traded at $1,294 an ounce. Silver at $19.55 an ounce.
The US stock market is performing in ways not supported by underlying economic fundamentals and that should make investors nervous.
The S&P 500 rose above the 1900 level earlier today for the first time ever. That might be cause for celebration in some circles, but we must remember that every heavy night of partying is paid for with a hangover.
The current run in stocks is over 5 years old – well past the average length of uninterrupted bull markets – and investors must be prepared for the inevitable reversal.
Time is not the only factor working against the stock market. Economic factors are not supportive of a continuing bull market. It appears the stock market is being propped up by the artificial stimulus of the Fed, which even Janet Yellen knows cannot continue forever.
The latest worrisome data on the economy came today in the form of a report on retail sales.
U.S. retail sales barely rose in April and a gauge of consumer spending slipped, which could torpedo hopes of a sharp acceleration in economic growth in the second quarter.
The Commerce Department said on Tuesday retail sales edged up 0.1 percent last month, held back by declines in receipts at furniture, electronic and appliance stores, restaurants and bars, and online retailers.
Economists had forecast sales advancing 0.4 percent. Retail sales account for a third of consumer spending.
So-called core sales – which strip out automobiles, gasoline, building materials and food services and correspond most closely with the consumer spending component of gross domestic product – fell 0.1 percent in April.
Retail sales were restrained by a 2.3 percent drop in receipts at electronics and appliance stores. Sales at furniture stores fell 0.6 percent, while receipts at food services and drinking places dropped 0.9 percent.
Sales at non-store retailers, which include online sales, fell 0.9 percent.
The housing market is another faltering economic sector. Higher costs and rising interest rates may signal a retreat of this major economic driver, raising fears it once again may drag down the rest of the economy.
New and existing home sales in March were down by 13.5 percent from their peak nearly a year ago.
Economists say the nearly 1 percentage point jump in 30-year mortgage rates spurred by Federal Reserve policy over the past year has combined with fast-rising home prices to make housing less affordable for the average consumer, who continues to be pinched by limited wage gains and impaired access to credit. Moreover, first-time home-buyers, a group that plays a pivotal role in propelling housing growth, have been in short supply because of high unemployment rates and bloated student loan debts among the millennial generation.
Hopes that housing would regain momentum this year amid a broader economic recovery have been disappointed. Reports show the housing slump continued, and even deepened, during the normally busy Spring.
There could be further economic trouble on the horizon thanks to the federal government, specifically the Environmental Protection Agency. At least that is what the coal industry is saying.
The Environmental Protection Agency’s carbon dioxide limits for new power plants will devastate the economy by leading to a steep surge in energy prices, the coal industry and its allies are warning.
The American Coal Council said the new standards would essentially take coal off the market as a power source for new plants.
Separately, the Chamber of Commerce said the rules would have an effect well beyond the coal industry by leading to job losses in the broader economy.
The new rules, which the EPA plans to roll out in January 2015, are a key part of President Obama’s climate change initiative and are intended to reduce global warming.
Speaking of higher prices, many Americans realize the cost of living is in fact rising substantially, despite the fact it isn’t reflected in official government statistics.
The rising cost of living is visible in items like food, energy, housing and, of course, health care. It’s also in less visible items, such as contracts to service air conditioners, heating systems and motor vehicles. Not to mention in income taxes, property taxes, water bills, etc.
The market basket of goods and services used in government inflation surveys does not adequately capture buying patterns.
Finally, in Europe, banks are undergoing one of those so-called “stress tests” and even before the test concludes, things don’t seem to be going well.
European banks are being urged to boost their ability to withstand losses before the conclusion of the stress test that is drawing criticism for its design.
The European Central Bank is leading the charge to prove the region’s banks are robust before it takes over financial supervision in November, and has squeezed an unprecedented Asset Quality Review and a stress-test into its year of preparation. That pressure has led to some disquiet about the compromises needed to get the job done on time.
Some banks may have difficulty passing the adverse stress-test scenario, which was unveiled by the European Banking Authority and ECB last month. The model simulates turmoil that starts in a global bond-market rout.