The Week Ahead: What About Retailers?

Despite Wednesday's weaker-than-expected ADP private-sector job figure for April, Friday's employment report missed expectations only modestly, with 223,000 jobs created during the month. A note of caution: These reports have become increasingly hard to gauge and we have to look no further than last month's report when the U.S. labor market added 126,000 jobs in March, falling short of economists' estimates of 247,000 jobs.

Now for the bad news in the latest employment report: Wages grew 0.1% month over month (only 2.2% year over year) and that abysmal 126,000 March jobs figure was revised substantially lower to just 85,000 jobs. Next week's Labor Market Conditions Index for April, as well as the March Job Openings and Labor Turnover Survey (JOLTS) should shed more light on the strength of the jobs market.

Now for the good news (we always like getting bad news first): Even though it missed expectations, like so many other indicators we've been getting over the last few months, April job creation bounced back sharply compared to March. This, as well as the pickup in construction jobs, reinforces the view that weather was a big factor during this year's first quarter. We've heard many companies, retailers and restaurant companies, blame the weather as well as the port closures for their poor March quarter performance, but to us it's not looking as simple as that.

The April jobs bounce-back was expected -- you could see it in the consensus expectations -- but we need to see other economic data bounce back as well. Also, while many will react positively should the economic data bounce back in April and May, we will only get a look at the real velocity of the U.S. economy come June and early third-quarter 2015 as the pendulum swing following the weak March quarter starts to settle.

To us, that says the Fed will hold off raising rates until at least late 2015, and that's obviously good news for stocks today and in the coming months. The realization that interest rates will be lower longer is giving a boost to our high-dividend payers -- HCP (HCP) and Physicians Realty Trust (DOC), among others. Those low rates also mean the buyback boom will continue, and that means we continue to like PowerShares Buyback Achievers ETF (PKW).

Helping support that lower-rates-for-longer view is the growing number of companies that are cutting top-line guidance. Case in point, Thursday night Nvidia (NVDA), the largest maker of chips for computer-graphics cards, gave a forecast for second-quarter sales that fell short of analysts' estimates, hurt by the persistent slump in PC demand. Not all that surprising when we use our PowerTrend lens and factor in the news from Google (GOOGL) that more searches are being done on mobile devices than on desktops. Put the two together and it points to what we've already known -- mobile is THE modality of the connected world. We continue to favor shares of Qualcomm (QCOM) and Skyworks Solutions (SWKS).

Turning to the week ahead, we will get some temporary relief on the earnings front, but before too long all those retailers and other companies that had April quarter end dates will soon deliver their results. We know consumers have been hanging onto their dollars, spending less and saving more over the last few months, and next week Macy's (M), Nordstrom (JWN) and Ralph Lauren (RL) will set the stage for what we'll be hearing. Alongside those reports, April retail sales will be hitting the tape. While March retail sales bounced back from the monthly sales declines in December, January and February, the March retail sales report showed that for the quarter consumers in aggregate still preferred savings over consumption.

The fact that consumer borrowing ballooned in March to its highest level in eight months, helped by a rebound in credit card debt, offers little comfort. When viewed against low-to-no-wage growth and higher savings rates, it would seem Mr. and Ms. Consumer are taking a page out of corporate America's playbook and are using the low interest rate environment to buy what they need while socking away what cash they can. Our concern upon seeing the $20.5 billion increase in total credit, following a revised $14.8 billion gain in the previous month, is how will consumers eventually work down that debt load if wage growth remains lackluster and labor force participation rates don't improve?

Also next week, we have tech earnings reports from Cisco Systems (CSCO) and Applied Materials (AMAT) that will be sure to have ripple effects across the technology landscape. Other notable earnings next week include one of Versace's favorite companies, International Flavors & Fragrances (IFF), as well as his sleeper play on Apple (AAPL) Pay that is USA Technologies (USAT). Other companies on our watch list include Dean Foods (DF), which is switching to a national brand strategy; Zillow (Z); and two favorites, Shake Shack (SHAK) and El Pollo Loco Holdings (LOCO) that are proving McDonald's (MCD) has more issues to fix than just its menu.

Rounding out the economic data to watch will be the April Producer Price Index and April industrial production data, both of which are published later in the week. Given the trends in several PMI data streams in recent months, we're looking for those bounce-back signs in the domestic manufacturing economy. 

Below is a more detailed look at the economic data in the week ahead. For a fuller list of corporate earnings to be had over the next five days, click here to view The Street's weekly earnings calendar. Be sure to check back for our midweek column, in which we will dish on the first half of the trading week and other key matters and thoughts, as well as how to play it all.   

At the time of publication, Versace and Hawkins had no positions in the stocks mentioned, but the Versace-managed Thematic Growth Portfolio is long QCOM, SWKS, MBLY and USAT.