Mr. Market is full of surprises. Some are good, others less so. For the moment, the fomer seems to be in control when it comes to equities, and arguably the main reason is the fact that consumers continue to surprise as well with a seemingly non-stop bout of spending.
More than a few analysts have been surprised by the trend. Indeed, bears remain flabbergasted that the median firm in the S&P 500 reported a 10.1% rise in earnings in the first quarter, according to Zacks. That marks the 19th consecutive quarter of double-digit gains. Perhaps even more encouraging for the here and now is the fact that two cyclical sectors of the S&P reported the strongest earnings gains in Q1: a 14.5% jump for materials (which was the earnings leader among the 10 sectors); and a 13.5% rise for industrials.
One is inclined to connect the dots and note that Joe Sixpack’s affinity for spending shows no sign of slowing in recent history. The latest evidence came in last week’s retail sales report for May, which registered a 1.4% jump over the previous month–the strongest monthly advance since January 2006. Reports of the death of consumer spending, in other words, have been greatly exaggerated.
The future, of course, is up for grabs, as always. But for now, there’s no denying the basic American urge to spend, to keep on spending, and spend a little more. If Joe wills it, channeling triumph by way of his wallet, a financial reckoning of any great magnitude will be postponed. No one can say for how long, but skeptics of the Joe’s capacity for consumption, conspicuous or otherwise, have taken it on the chin so far.