The Impact of the Consumer: A Recipe for a Retail Rally?
BRUCE STEINBERG, MERRILL LYNCH: Over the last couple of weeks, the data that's come in from the consumer, from the retail sector, has been very strong. That's new information. It shows that consumer spending was still going awfully strong as the year ended. And until consumer spending begins to slow down, rates are going to -- tend to be going up.</s>DEBORAH MARCHINI, CNN ANCHOR: Well, we know that to be true, don't we. At least that's the expectation, starting with maybe a couple of rate hikes, early this year.</s>JOHN DEFTERIOS, CNN ANCHOR: And the Federal Reserve concerned about labor right now, as well, and the rising cost of labor going forward, perhaps with the unemployment rate going below -- well below four percent in the year 2000. Let's join -- bring in Christine Romans and see the impact of the very wealthy consumer after the stock market gains and what sort of impact it's going to have on Fed thinking at the start of February -- Christine.</s>CHRISTINE ROMANS, CNN CORRESPONDENT: Well, it's interesting. This week, starting tomorrow, actually, we're going to get a really clear picture of what went on with the consumer in the month of December. That's when we're going to get same-store sales from lots of these major retailers, tomorrow. And analysts are telling me they expect them to be very good, they expect growth of between five and 5 1/2 for same-store sales during the month of December, and that round out a very strong picture of the consumer in the fourth quarter. Now, is this a recipe for a retail rally in the stocks? Well, that remains to be seen, but some of the -- some of the factors that are at play, here: TeleCheck said that December sales jumped 5.8 percent; that's a strong performance. The first quarter shows some seasonal strength, actually, for stock prices. Late December to mid- March is the best appreciation, historically, for stock prices of retailers. So, that's a positive that's coming up. And incomes continue to grow, jobs remain abundant, and all kinds of retail analysts and economists say that that's a very important combination for the consumer, who still feels wealthy and is willing to go out there and spend some money. Now, that said, it was a big rally, last year, for the S&P; retail index. It was a big sell-off for the S&P; retail index, yesterday, the retailers not faring well at all in the down-draft that wiped across Wall Street, yesterday. Kohl's, however, actually not doing as badly as some of the others, down less than a dollar at 67 9/16. It's interesting, J.P. Morgan actually put out a buy recommendation on this stock, yesterday. It's at a $82 price target. Other analysts telling me that Kohl's is well positioned as a pretty diversified retail store in this environment. Home Depot down 6 11/16; it is a Dow component. Dayton Hudson, that's the parent of Target, which is a pick of a couple of traders -- or, analysts I talked to; that one's down 3 1/8. Wal-Mart, which is also in the Dow, down 2 1/2. And Sears up 1 1/2. It actually had some upbeat things to say about its fourth quarter. So those are how some of them fared, yesterday. There are a couple of different retail analysts, yesterday and early today, who are telling me that this sector does look pretty good for the first quarter, some seasonal strength, perhaps. Even with expectations for Fed rate hikes, they say the consumer was undaunted with three rate hikes, last year, and they expect that to continue at least through the first part of this year.</s>MARCHINI: As long as the jobs hold up. What would have to happen to the market before that wealth effect that has been so helpful to consumer spending went away.</s>ROMANS: It would have to be at least 10 percent before we can start talking about what would happen, we'd have to see a decline of at least 10 percent. We're not there yet, although we are -- it is not too soon to say that we could be in the midst of trying to put together a 10-percent correction in these markets. But these analysts tell me that the consumer really is undaunted until you have a sustained down-draft and you -- in October, when we saw a real correction in the S&P; and in the Dow, you didn't see the consumer back off.</s>DEFTERIOS: Yes, they jumped right back in as a buying opportunity.</s>ROMANS: Exactly, exactly.</s>DEFTERIOS: Thanks very much for that, Christine.