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Goldman, IBM report earnings — What you need to know in markets on Tuesday

Myles Udland
Markets Reporter

And now, only the Dow is left behind.

After stocks staged a solid rally to start the week with each of the major averages gaining more than 0.7%, the Dow is the only index which has not yet recovered its year-to-date losses.

Coming off the heels of a week that was filled with political drama and geopolitical tension, stocks opened the new trading week on a positive note with the Dow adding 212 points, or 0.8%, the S&P 500 rising 21 points, or 0.8%, and the Nasdaq adding 49 points, or 0.7%.

On Tuesday, corporate earnings will be a major focus for investors with Goldman Sachs (GS), United Airlines (UAL), Johnson & Johnson (JNJ), United Healthcare (UNH), and IBM (IBM) all set to report results.

Goldman’s results will garner particular scrutiny as financials have been a key cog in the market’s post-election rally. Additionally, during the first quarter the firm announced that co-COO Harvey Schwartz would retire, making David Solomon the likely successor to Lloyd Blankfein. In early March, The Wall Street Journal reported Blankfein could retire by the end of the year.

David Solomon (L) is likely to succeed Lloyd Blankfein (middle) as the next CEO of Goldman Sachs. Co-COO Harvey Schwartz (R) will retire at the end of the week.

On the economic data side, housing starts, building permits, and data from the Federal Reserve on industrial production will be highlights.

In after hours trade on Monday, Netflix (NFLX) shares were up as much as 7% after the company reported revenue and subscriber growth that topped estimates. The company also said it still expects negative free cash flow of $3-$4 billion in 2018 as it invests in more original content.

Retail sales, retail fails

The March report on retail sales beat expectations, as sales rose 0.6% against expectations for a 0.4% gain. This was also a bounce-back after sales dropped 0.1% in February.

Economists attributed much of this headline beat to a jump in auto sales. Adjusting for this the numbers look somewhat less impressive.

“Real consumption looks to have slowed to around 1% annualized in the first quarter,” said Andrew Hunter, U.S. economist at Capital Economics. “Nonetheless, with incomes boosted by the recent tax cuts and a strong labour market, the conditions are in place for spending growth to pick up again in the second quarter.”

Inside this report, we also got another look at the depth of so-called retail apocalypse that — with the entry of Amazon (AMZN) into brick-and-mortar retail over the last year or so — had been somewhat sidelined as dominating narrative in markets. And it’s clear that online shopping will soon overtake most brick-and-mortar stores as a percent of total sales.

In a note to clients on Monday, analysts at Bespoke Investment Group looked at what they call the “Bricks” vs. “Clicks” trend, showing the share of retail sales accounted for by general merchandise stores (which includes department stores) and nonstore retailers.

In March, the spread between these two was 0.6%, the narrowest on record and about half as large as it was just six months ago.

Online sales have almost closed the gap with sales at department stores as a percentage of total retail spend. (Source: Bespoke Investment Group)

In the months ahead, nonstore retail will almost surely overtake general merchandise as a percent of sales. This is the simplest way to see the shift to people moving their shopping away from brick-and-mortar and towards online outlets.

On Monday, Yahoo Finance’s Julia La Roche reported that research from at least one Wall Street firm indicates that 80,000 more stores could close by 2025 as online sales take an ever-growing share of the consumer pie.

And while there will always be physical stores for consumers to shop at — and no doubt many success stories in the brick-and-mortar space — the broad trend of where consumers choose to spend an ever-larger share of their dollars is clearly shifting online.

Since the end of the financial crisis, total retail sales have risen about 44% while general merchandise stores have seen sales rise about 20%. Nonstore retail sales have more than doubled.

Nonstore retail sales — which includes online outlets like Amazon — have more than doubled since the crisis. Overall retail sales are up about 40% over this same period. The increase is even less for brick-and-mortar retailers. (Source: FRED)

And so the “retail apocalypse” and “death of the mall” become tired phrases when repeated over and over in discussions about consumer shopping habits. But these ideas are continually repeated because they are true. And will continue to be.

Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland

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