Retail Sales Don’t Fit A.I. Upgrade Cycle Story

Today could be a tricky session ahead of tomorrow’s mid-week holiday since we just had two competing pieces of data from the economy. Retail sales disappointed with a miss and downward revision, but industrial production posted a nice surprise beat.

My guess is retail sales will take precedent in shaping the market’s contour today. That’s because Monday’s session was a uniquely consumer-centric rally, with the discretionary sector powering up around a growing narrative of an AI-inspired upgrade cycle for personal electronics. Best Buy is ripping, Apple’s ecosystem is surging, and hopes are running high that the consumer is ready to shell out cash for high-powered devices. The retail print throws some cold water on that.

If Treasuries stay bid, it’s probably not the ideal outcome for bulls. We’ve seen that relationship between bonds and stocks shift the past few months. Bad data is not as welcomed by bulls as long as the Fed makes it clear it can’t cut rates. That’s why market breadth remains lackluster and economically-sensitive groups are underperforming.

Last week I swapped the green light on stocks and yellow light on bonds in my Risk Radar as the momentum for bonds seems more compelling than that for stocks, where AI trades have turned into a pure valuation run-up, and cyclical groups like industrials and regional banks look on the brink of breaking down. Monday’s move was a strong counterpoint to that notion, but Tuesday’s retail sales fit into my thesis that the combination of growth and inflation is turning unfavorable for investors again.