Better Retail Data Won't be Enough to Make Fed Move on Rates

While Friday’s better-than-expected data on the U.S. consumer wasn’t enough to help Wall Street hold onto its gains, one market watcher says it’s also not enough to push the Federal Reserve to raise rates at its next meeting in June.

Lenore Hawkins, founding partner at Meritas Advisors and co-author of ‘Cocktail Investing,’ said while the economic data surprised to the upside, there’s more on the U.S. central bank’s plate to consider before hiking rates again. She pointed to the looming mid-June decision overseas in which British citizens will take to the polls to decide whether their nation should leave the European Union.

“That vote on the UK leaving the eurozone is just a couple of days after the June meeting. And that could really rock markets,” she said. “I don’t see the Fed adding something more in with the rate hike that would just make the markets even more nervous.”

Further, Hawkins pointed to a Fed study that showed 47% of Americans don’t have $400 they could pull from their bank accounts to use in case of an emergency. She explained that while data have shown more Americans saving more money since the Great Recession – the levels are off a low base.

“It’s not really a bad thing to see people saving more. And yes Americans are spending a little bit more, but when we look at the last GDP numbers, the big areas of spending have been housing and health care…you put those together and that’s a lot of people’s wallets. It doesn’t leave much leftover for them to go have fun,” she said.

To that point, Hawkins’ co-author, Chris Versace, who is also the chief investment officer at Tematica Research, said the April retail sales report showed consumers are spending cautiously. The data from the Commerce Department showed a 1.3% jump in retail sales, compared to expectations for a 0.8% rise. Excluding the volatile autos component, sales rose 0.8% compared to views for a 0.5% tick higher.

“A reading of up 0.8% excluding autos is hardly gangbusters,” Versace said. “And we see other confirming signs of this in our cash-strapped consumer investing theme. But we also continue to see a shift in what they spend on and where they spend.”

Versace explained that more shoppers spent more on clothing and accessories, sporting goods, hobby, and purchases made at health and personal care stores. Those trends bode well for online players like Amazon (NASDAQ:AMZN) which have been poaching consumers from bricks-and-mortar retailers for several years.

“The fact that April’s year-over-year increase was stronger than that for the first four months of 2016, up 8.1%, tells us consumers are increasingly shifting where and how they ship to online and we see Amazon as a natural beneficiary as it expands its Prime offerings,” he said.

In light of the categories that remained strong for physical retail in April, Versace advised keeping an eye on shares of Under Armour (NYSE:UA), Foot Locker (NYSE:FL), Nike (NYSE:NKE), Shake Shack (NYSE:SHAK), and Jack in the Box (NASDAQ:JACK).