Why retail sales data this week is of particular importance for markets

Regions Wealth Management’s chief of investments, Alan McKnight, says the US retail sales data on Nov. 25 will be “particularly important” despite it being backward-looking.

It will offer fresh insight into consumer resilience ahead of the holiday season, after mixed earnings from retailers like Walmart and Home Depot.

And since the Federal Reserve is unlikely to receive inflation data for October in its entirety, clues about consumer health may be even more material for it to decide on its policy stance next month.

How retail sales could shape the Fed’s rate cut decision

If the retail sales data on Tuesday indicates weakening demand, it will reinforce the argument for a rate cut in December as Fed Governor John Williams indicated last week.

According to McKnight, “the market is really craving some type of cut,” meaning it needs a signal from the US central bank confirming its responsiveness to economic softness.

Retail sales, in this context, become a key input for the Fed’s dual mandate – balancing inflation control with employment and growth.  

On the flip side, if retail sales data suggests continued strength in spending, it may reinforce Boston Fed President Susan Collins’ view that there’s “no real urgency” in cutting interest rates.

In short, the upcoming report will offer “a better sense of what’s going on with the US consumer,” guiding the central bank’s hand on monetary policy in the absence of the full CPI print for October.

Do markets really ‘need’ a rate cut in December

While a December rate cut would be welcomed by investors, McKnight believes timing is actually secondary to trajectory.

“We don’t think it has to happen in December – it could happen in January,” he told CNBC in a recent interview. What matters more is whether the Federal Reserve continues to favour easing.  

If Chair Jerome Powell uses the upcoming press conference to telegraph a dovish stance, markets may rally even without immediate action.

McKnight framed it as a matter of tone: “As long as the Fed is not a foe … the market can still feel pretty good.”

Simply put, clarity and commitment to a rate-cutting path may be just as powerful as the cut itself.

Retail sales as the new inflation proxy

According to Alan McKnight, without a clearer picture of inflation, the US central bank may use the retail sales data as a proxy.

It will offer a real-time snapshot of consumer behaviour and a directional cue for monetary policy.

With the Fed’s final meeting approaching and markets hungry for guidance, this week’s report may be the most consequential data point of the month.

Whether it confirms economic cooling or surprises to the upside, it will likely shape expectations for rate cuts – and investor positioning – into year-end.

Ahead of it, the benchmark S&P 500 index is up a whopping 34% versus its year-to-date low.

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