Why The Retail Sector Should Continue Higher
Today’s Conference Board
showing confirms that the rebound in consumer confidence from March’s lows
continues. Last month, the index posted its highest reading since
1991 (after the Gulf War), and it managed to improve on these gains again in May
to 83.8 — its highest level in six months. This number is especially
meaningful, however, when taken into context with the current growth in the
money supply. The reason is that without an increase in liquidity to complement
the higher consumer sentiment, the economy and stock market would not have the
fuel to keep moving higher.
Money with zero maturity, which is the preferred
measure of the money supply, has risen by close to $100 billion in the past four
weeks to a record high $6.3 trillion. This number is led by major flows into
savings deposits by consumers, to the tune of $78.3 billion, and the total
number now stands at an eye popping $3 trillion. This increase in liquidity has
been aided by a couple of factors. First, record low mortgage rates have
enabled consumers to refinance their existing debt commitments at much lower
levels, and as a result, they have lowered their monthly debt payments. And
second, a significant decline in energy costs has also helped free up consumer
wallets, as they now have lower fixed costs at the gasoline pumps.
So expect consumer stocks and their broader
holders, such as
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PowerRating) and
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ahead as higher liquidity and improving sentiment continue to underpin growth.