If there’s one thing I’ve learned in my 47-year career in the market, it’s that you should never doubt the resilience of the U.S. consumer… and we got fresh evidence of this on Thursday with the latest U.S. retail sales report.
So, in today’s Market 360, we’ll cover the highlights of the report. We’ll also discuss what it means for the state of the overall economy as well as the likelihood of future key interest rate cuts. And while we’re at it, I’ll tell you about a group of stocks that’s uniquely positioned to profit from falling rates – and how a window is opening that could lead to potential returns of 100% or more over the next 12-24 months.
The U.S. Consumer Is Alive and Well…
The latest U.S. retail sales report showed broad gains in September and beat economists’ expectations.
Specifically, retail sales rose by 0.4%, compared to expectations for a 0.3% increase. That’s also a big gain compared to August’s 0.1% rise.
Now, I told my premium readers earlier in the week that I wanted to see whether consumers would take their savings from declining gasoline prices and use that to spend in other areas. And it looks like that’s exactly what they did…
Excluding autos and gasoline stations, sales were up 0.7% for the month, or 3.7% on an annual basis. Economists were only looking for a 0.1% lift, so that’s a huge jump.
Digging further into the details, the report showed gains in 10 out of the 13 categories measured. Here are some highlights:
- Sales at miscellaneous store retailers (florists, pet stores, etc.) are up 7.9% annually
- Non-store retailers were up 7.1% from last year
- Sales at food services and drinking places were up 3.7% annually
Now, consumer spending makes up for about two-thirds of our gross domestic product (GDP). And that’s why traders like to look at what’s called the retail sales control group. This is a set of retail sales numbers that excludes things like car sales, gas stations, and building materials.
Control group sales rose at a 6.4% annualized pace for the three months ended in September. And as a result, the Atlanta Federal Reserve is projecting a 3.6% annualized increase in personal consumption for the third quarter. That would be the strongest pace this year.
Remember, the most recent inflation data shows that inflation continues to moderate. And while the job market has softened, it’s not sounding any alarm bells at the moment. So, throw in what will likely be solid GDP growth backed by resilient consumer spending, and it means that a 0.25% key rate cut at the November Federal Open Market Committee (FOMC) meeting is practically guaranteed.
It’s Time for Small-Caps to Shine
Now, an environment of falling interest rates is certainly good news for stocks. But there is a group of stocks that are poised to benefit more than just about anything else.
I’m talking about small-cap stocks.
As I discussed briefly in a previous Market 360, smaller-cap stocks are some of the biggest beneficiaries of lower interest rates. Smaller companies tend to have bigger debt loads than larger companies, and when interest rates decline, they benefit handsomely.
Also, consider the fact that this market has been shockingly narrow. Since the spring of 2023, larger-cap stocks have outperformed the smaller stocks by a wide margin. You can see that in the chart below, represented by the SPDR S&P 500 ETF (SPY) and the iShares Russell 2000 ETF (IWM).
As rates decline, I expect this performance gap to narrow. In fact, the small-cap rally is already underway…
In the past two weeks, the small-cap Russell 2000 has exceeded the performance of the S&P 500. In fact, the Russell 2000 is up about 4.5%, while the S&P 500 has risen about 2.8%. The Dow is up about 2.2% in the past two weeks, while the NASDAQ has climbed 3%.
What’s really exciting, though, is that this could be just the beginning. We are approaching the time of year where we get an “early January effect.” And in my experience, when we see an early January effect, there is typically a much bigger rally in January.
So, I’m very, very bullish right now.
Of course, there are a couple of other factors that are also supporting higher stock prices for smaller-cap stocks. Primarily, the presidential election is less than three weeks away, and both candidates have been on the campaign trail making a lot of promises – and that’s boosting moods on Main Street and Wall Street. So, the market will likely continue to rally right up to the election on November 5.
Also, the third-quarter earnings announcement season is officially underway, and the early results have surpassed analysts’ expectations. In fact, FactSet anticipates the S&P 500 will achieve much higher earnings growth than the current estimate of 3.4%. They project that wave-after-wave of better-than-expected earnings results will drive the S&P 500’s average earnings growth rate to nearly 10%.
A Rare Window Is Opening for Big-Time Profits
Now, I’ve always been a “numbers” guy. And my data consistently shows that stocks with strong sales and earnings growth outperform the rest of the market year after year.
And because smaller companies have more “room to grow,” if we can uncover fundamentally superior small-cap companies that are positioned to be tomorrow’s winners, we can make a killing in this market, folks.
My colleague Jason Bodner agrees. He’s been telling his readers to prepare for a potentially big run for a while now.
Citing the same reasons – falling interest rates, inflation now under control, and both election-year and seasonal patterns – he says to get ready for a “Big Lift” in the market well into the new year.
And this should especially be the case with small-cap stocks.
In fact, Jason has been telling his followers that, thanks to the recent Fed cuts, we are witnessing the opening of a “Retirement Accelerator Window.” That’s because every time it opens up, investors have the chance to put their retirement goals on hyperdrive.
This window has only occurred three times in the last 35 years and is responsible for producing gains of 117%, 250%, and even 514% in extensive backtests.
And here’s the thing… I didn’t know it until I looked over Jason’s research, but some of the greatest picks I’ve ever made happened during these Retirement Accelerator Windows.
In fact, we went back and counted over 40 triple and quadruple-digit recommendations during one of these windows.
I want to be clear: I believe this is a MASSIVE wealth-building opportunity.
I’ve known Jason for years, and I’ve looked over his research from top to bottom. This is a tremendous opportunity. We don’t want you to miss out, which is why Jason filmed a new broadcast to further explain the Retirement Accelerator Window and how you can benefit. He also shares the name of his number-one pick to buy now for a shot at a triple-digit gain.
Click here to watch the broadcast now.
Sincerely,
Louis Navellier
Editor, Market 360
