Breakout

In a Data-Laden Week, Let CPI Be Your Guide: Forrest

Jeff Macke
Breakout

Forget the campy Olympic closing ceremonies, Wall Street is about to throw a wonky, data dumping party the way only it can. In the next five days, economic data will include Retail Sales, the Producer Price Index (PPI), Consumer Price Index (CPI), Housing Starts, Consumer Sentiment and very close to anything else economists working for the government can throw our way.

For those more fond of company-specific data, this week will also have earnings from Target (TGT), Wal-Mart (WMT), Home Depot (HD), Sears (SHLD), Saks (SKS), TJX Cos. (TJX), Gap (GPS), Abercrombrie & Fitch (ANF), Dick's Sporting Goods (DKS), Children's Place (PLCE), and just about any other company with a finger on the pulse of the consumer.

Trying to take in all the information at once is akin to drinking out of a fire hose; you risk serious head injury without effectively taking in much of anything. According to Kim Forrest, Sr. analyst at Fort Pitt Capital, taking selective sips of information is a better way to gain valuable perspective on the strength of consumers.

Lets start with PPI on Tuesday and CPI on Wednesday. Anyone paying even passing attention to corporate earnings realizes margins are being squeezed by rising input costs. It's consumer inflation that matters, and not just because of the impact on your wallet.

"The Fed really looks at CPI," says Forrest. "We want to know if the Fed is going to take action, so that's a key measure for us this week."

Continuing in the theme of the consumer, Forrest is watching both retail sales data from the government and earnings reports from the merchants themselves. The data is volatile but the trend for the retailers started rolling over in May, and June's data was extremely soft. For bulls it's going to be critical that July data shows, if not a huge pick-up, at least stabilization. And though it's hard to believe, Forrest notes that August is back-to-school season; a period that can set the tone for the rest of the shopping year.

Of the retailers Forrest is keeping it simple. "We want to know if they're making money, whatever level of sales they have." She says companies have switched their sourcing from China, where wages are rising, to cheaper manufacturing areas. The nimble players should be well managed enough to stay profitable, even in tough times.

Forced to pick just one retailer, Forrest jumps to the discount space but not where you may think.

"I enjoy going to Target and I think they have more to gain than Wal-Mart does," she says. "I'd pick an underdog and hope they've turned things around a little bit there."

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