Larry’s note: Welcome to Trading with Larry Benedict, the brand new free daily eletter, designed and written to help you make sense of today’s markets. I’m glad you can join us.

My name is Larry Benedict. I’ve been trading the markets for over 30 years. I got my start in 1984, working in the Chicago Board Options Exchange. From there, I moved on to manage my own $800 million hedge fund, where I had 20 profitable years in a row. And, I’m featured in the book Market Wizards, alongside investors like Paul Tudor Jones.

But these days, rather than just trading for billionaires, I spend a large part of my time helping regular investors make money from the markets. My goal with these essays is to give you insight on the most interesting areas of the market for traders right now. Let’s get right into it…

After a decline in recent months, retail sales roared back to life…

After a grim reading of negative 2.5% in December (revised lower from negative 1.9%), data released on Wednesday showed retail sales bounced 3.8% in January.

That’s almost double the market’s expectations of a 2% rise.

Even furniture sales (dealing with annual inflation of over 14%) saw a 7.2% jump in January.

But the biggest gain this past month comes from non-store retail sales…

After suffering a large drop in December (as we discussed in late January) of 8.7%, the data for January showed an incredible 14.5% bounce.

One thing is for sure… the average U.S. consumer is proving to be much more resilient than many thought.

You can see in the graph below how the rise in retail sales from January compares to other data over the past 12 months. It’s the second biggest rise in a year and the biggest jump in 10 months…

U.S. Retail Sales


Source: Trading Economics, U.S. Census Bureau

It’s a big change from the last quarter of 2021, when retail sales looked anemic.

The last quarter saw a 1.8% rise in October, a 0.7% increase in November, and a minus 2.5% drop in December.

Those numbers only showed one thing… a steady decline.

But despite all the inflation talk and speculation on rising rates, retail sales not only recovered but went through the roof!

This sure adds to the pressure on the Fed when they meet from March 16-17 to discuss not only whether they raise rates (that’s a given), but the size of that rise.

A recent Reuters survey from just a couple of days ago showed that 84 out of 84 economists polled believe that the Fed will raise rates next month. Yes, that’s every one of them.

And of those 84 economists, 20 (or roughly one quarter) believe that the Fed will raise rates by 0.50% in March.

While the recently released notes from the Fed’s January meeting provide no new insights on the timing (and size) of rate rises, I think the odds are much higher than that.

And so does the market…

Right now, the futures market is pricing the odds of a 0.50% raise at closer to 50%…

As I argued last week, strong recent jobs data shows that the economy is as close to full employment as it’s going to get. Wages are growing, and we’ve now just seen a strong bounce in retail sales.

It all paints a picture of an economy powering along… even with inflation at a 40-year high.

If it weren’t for the pandemic (the latest CDC data shows that Omicron cases are finally dropping), it’s impossible to imagine how interest rates would be (or remain) at zero against this economic backdrop.

Either way, the Fed is miles behind the inflation curve.

And that means whether they raise rates by 0.25% or 0.50% next month, they’ll spend all year playing catch up.

In the meantime, plenty of economic data will keep flowing before their next meeting…

On March 4, we’ll see the next lot of non-farm payrolls and unemployment data.

Then less than a week later on March 10, the market will focus on the next inflation print. If the Consumer Price Index (CPI) comes in around or above 7.5%, it’s going to put even more pressure on the Fed to raise rates by 0.5%.

On the opening morning of the Fed’s next meeting on March 16, we’ll have the next batch of retail sales data.

Each of these economic releases (both individually and collectively) will have a massive input into what the Fed will do from here. A spike in any of them could just about ensure a 0.50% rise.

It also means that with so much data to come – and so much uncertainty about the size of the next rate rise – it’s going to be one busy (and volatile) month ahead in the markets.


Larry Benedict
Editor, Trading With Larry Benedict

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