MarketView for April 8

Summary 

Share prices moved somewhat higher on Thursday after March retail sales exceeded expectations and increased optimism that the economic recovery is on track. Specifically, some of the nation’s largest retail chains reported a record year-over-year increase in same-store sales for March of a record 9.1 percent. The sales reflected an increase in consumer demand that many doubted would materialize because of the current anemic job growth.

A good example is Amazon.com, up 4.5 percent to $140.96, its highest close in four months. Other performers in the retail segment included Target up 3 percent to close at $55.64, while Gap chalked up a gain of 3.1 percent to close at $24.59.

Nonetheless, retail executives warned that the increase in March would come at the expense of April sales. Meanwhile, the gains in retailers' stocks eclipsed worries about Greece's debt load as the country's borrowing costs rose to new highs even as the government struggled to reassure markets it can stay solvent.

The indexes' moderate gains were characteristic of the rally's most recent leg. The S&P 500 has moved steadily but slowly upward since the beginning of March, rising 7.4 percent, even as momentum indicators suggest the rally could stall in coming weeks.

In a move that could create the second-largest air carrier in the United States, UAL Corp's United Airlines and US Airways Group are in merger talks. Shares of both companies rose sharply, with UAL Corp up 6.8 percent at $20.23 and US Airways ending the day up 10.7 percent at $7.55.

On the downside, shares of computer chip manufacturers fell, with the Philadelphia Stock Exchange index of semiconductors .SOXX down 1.4 percent at 371.47.

On the economic front, data showed the number of workers filing for unemployment benefits unexpectedly rose last week. But the jump reflected volatility from the Easter holiday and did not alter the view that labor markets are recovering.

Easter Holiday May Have Skewed Unemployment Data

The number of workers filing for unemployment benefits increased unexpectedly last week but did not alter the view that labor markets are recovering as the jump reflected Easter holiday volatility.

Initial claims for state unemployment benefits rose 18,000 to a seasonally adjusted 460,000, the Labor Department said on Thursday, well above market expectations for 435,000.

A Labor Department official said the spike reflected difficulties in seasonally adjusting the data around a moving holiday like Easter. A March 31 holiday in California and the end of the first quarter also contributed to the rise.

Employment is the weakest link in the economic revival that started in the second half of 2009 following the worst recession since the 1930s. But there are heartening signs labor markets are in the early stages of recovery. A government report last Friday showed employers, led by the private sector, added 162,000 jobs in March -- the largest monthly gain in three years.

Although the four-week average of new jobless claims rose last week, it remained close to 450,000 for a third week. In another hopeful sign for the labor market, the number of people still receiving benefits after an initial week of aid fell to its lowest since December 2008, the report showed.

That took the insured unemployment rate, which measures the percentage of the insured labor force that is jobless, down to 3.5 percent, the lowest since January 2009, from 3.6 percent in the prior week.

While companies have resumed hiring, the pace remains too slow to make a huge impact on the 8.2 million people who have lost their jobs since the recession struck in December 2007. The Labor Department report showed more than 10 million Americans are receiving some form of unemployment benefit.

Government data last week showed a record 44.1 percent of the 15 million unemployed people in March had been out of work for 27 weeks or more.

Retail Sales Break Record

Top retail chains posted a record rise in monthly same-store sales for March, helped by an early Easter holiday and an improving job market, in the strongest sign yet of revived consumer demand. Sales at stores open at least a year rose 9.1 percent in March. More than 90 percent of 28 retailers tracked beat expectations. However, executives at retailers from department store operator Macy's to discounter Target warned on Thursday that the large increase in March would come at the expense of April sales.

While department stores outperformed their peers with a 12.3 percent rise, discount retailers also enjoyed a strong March. Teen apparel chains, which suffered double-digit sales declines a year earlier, beat expectations.

Easter sales were expected to hit $13 billion this year, far less than other holiday periods such as the weekend of Black Friday in November, when shoppers spent $41.2 billion, according to the National Retail Federation. However, industry experts see the holiday as an indicator of summer clothes shopping. Some questioned whether the even average growth was sustainable while U.S. unemployment remains high.

Department stores saw the biggest gains in March but said April results would be far more modest. Macy's said same-store sales rose 10.8 percent from a year earlier, well ahead of the 7.9 percent increase analysts had expected. It forecast flat results for April. Rival chain Kohl's forecast a low double-digit percentage same-store sales decline following its 22.5 percent surge in March.

Other retailers sounded similar warnings. TJX said same-store sales were up 12 percent, far above estimates, prompting the off-price retailer to raise its profit outlook. But it sees much more modest same-store sales growth of 2 percent to 4 percent in April. Kohl's shares closed the day down 0.9 percent, while Macy's ended up 0.9 percent. Target gained as well, ending 3 percent higher after saying that earnings would come in ahead of Wall Street forecasts.

Retailers that reported March sales above Wall Street expectations also included Limited Brands, which posted a 15 percent sales increase and saw its share price close up 2.3 percent. Gap posted double-digit gains for its three major chains: Gap, Old Navy and Banana Republic. Its shares were up 3.1 percent. Upscale department stores also fared well. Nordstrom reported an increase of 16.8 percent, compared with estimates of 10.6 percent, while Saks also exceeded estimates, posting a 12.7 percent rise. However, in a sign of how Wall Street expectations may be getting ahead of performance, Abercrombie & Fitch came in short of forecasts with a rise of only 5 percent. Its shares fell 1.4 percent.