US consumer concerns only strengthen resistance on US futures

The Big Tech stocks have been the primary reason why US stocks have been pulling higher since March. However, consumption is around two-thirds of the US economy. However, there are increasing signs in recent days that the US consumer is not in their happy place. This will likely continue to build on the resistance forming on the e-mini S&P 500 futures that have restricted the rally in recent weeks.

Consumer indicators are weakening
Home Depot posts poor results and cuts guidance
The resistance on e-mini S&P 500 futures builds further

Consumer indicators continue to weaken

The US consumer continues to tighten their belt. In the face of high levels of inflation and the most aggressive rate hikes by the Federal Reserve in decades, the US consumer is cutting back.

This was reflected in Friday’s prelim Michigan Sentiment data which posted a series of downside surprises. Both current conditions and expectations fell decisively (when they were expected to pretty much hold up), leading to the sentiment falling to a six-month low as a negative trend increasingly takes hold. Added to that, long-term inflation expectations also increased to their highest since 2011.

Fast forward to today’s US Retail Sales and we have seen another batch of soggy data for April:

Headline Retail Sales increased by +0.4% MoM but were worse than the consensus expectation of +0.7%.
Core Retail Sales (ex-autos) increased by +0.4% MoM and was a shade lower than the +0.5% forecast.

According to the US Census Bureau, there was also a slight downgrade to March’s data for both headline and core sales. However, the news was slightly improved by the Control Group numbers that came in ahead of forecasts at +0.7% (versus +0.4% exp).

Although Retail Sales are still running with year-on-year growth around 2%, recent monthly declines and only small growth in April leaves the data looking rather tepid into Q2. As strong comparatives from Q1 and Q2 2022 drop out of the data, the annual growth is also looking far less impressive.

Home Depot disappoints on earnings and guidance

All this is also compounded by news of Home Depot’s quarterly results that were released just before the opening bell. With revenues of $37.3bn missing estimates by over -3% (more than -$1bn off market estimates), earnings also missed analyst forecasts.

It has been a US earnings season where the focus has been as much on the guidance as it has been on the results. And for that, Home Depot also took a swing and a miss.

The company now expects full-year sales to be down by between -2% and -5%, guiding previously for sales to be around flat. According to Refinitiv, analysts had already been looking for a -0.9% decline, so we can expect a fairly hefty chunk to be slashed off that. Earnings are also now expected to be down by between -7% and -13% compared to around -5% previously expected.

The shares were down around -4% in the pre-market and this might likely be a fairly difficult period for the Dow component.

This reflects the difficulty that the home improvement sector has faced since the end of the pandemic, but with big inflation, these spending reductions may continue for a while yet.

E-mini S&P 500 futures stuck under resistance

This batch of consumer indicators will do little to help the bulls on Wall Street.

There is a huge net short position that has been built by large speculators on the Commitment of Traders report.

This shows that institutional traders do not trust this rally. So either there is going to be a huge short squeeze or a corrective move in the futures. I’m in favour of the latter.

Here’s a look at the technicals. There is nothing overly corrective looking about the outlook at the moment. However, whilst the NASDAQ has been climbing steadily, the e-mini S&P 500 futures have been stuck under the big resistance between 4145/4190 for several weeks.

The momentum of the bull run (on the RSI) continues to sag whilst there is also a sell signal on other indicators such as the Stochastics too. I will be looking initially towards the support at 4111 this week, with the bigger support at 4062 being key.

There is still a concern that is bubbling under the surface. The growth stocks have been carrying the broader market rally. However, if the heavyweight big tech stocks stop rallying, the March/April rally will be on very thin ice. The warning signs are there from the consumer indicators.