Retail sales came in well below Wall Street expectations, down 0.4% for the month of January, according to the Commerce Department. Economists were expecting a drop of 0.1%. The disappointing retail result is the latest in a series of weaker-than-expected economic data that is combining to raise fears that the economic recovery may not be as strong as it appeared in the second half of 2013. Recent disappointments in auto sales, manufacturing and jobs have been attributed at least in part to the brutal winter weather. Michael Gayed, Co-Portfolio Manager of the Inflation Rotation Fund at Pension Partners, said that it is not all about the weather. “The consumer may actually be much weaker than we think,” he said.
As far as how stocks will react to the disappointing retail sales data, Gayed said there may be more selling to come. “Every single data point is confirming the bear thesis and the bear thesis has been much more right on the economy than the stock market.” Gayed believes there has been a disconnect between asset values and what has been happening on the ground. He warns U.S. equities may have further to fall in order to come down to reality.
“The market is starting to realize that this iteration of Fed stimulus has failed to achieve its objective,” said Gayed. “The Fed has failed on its objectives in terms of increasing inflation and increasing consumer spending power and psychology.”