Bulls roar but for how long?

The Dow surged 284 points on Thursday or more than 2% driven by Rio Tinto's (RIO) bid for Alcan (AL)and retail chain stores recording better sales than expected. Not that sales could be described as good but they were good enough to beat lowered expectations.

The International Council of Shopping Centers (ICSC) initially forecast overall sales growth for June of 2% - 2.5% but had trimmed that range to 1.5% - 2% by earlier this week. With 45 retailers reporting, the ICSC was showing a 2.4% gain in same-store sales. That was enough to give the bulls something to roar about.

According to same-store sales estimates compiled by Thomson Financial, 53% of retailers reporting results had missed forecasts while 44% beat them. Only 2% were right on target.

Leading the positive surprises was Wal-mart (WMT) with same store sales growth of 2.4% analysts had been expecting a tepid 0.8%. Other major companies to report results were:

Macy's (M), same-stores sales fell 2.7% compared with an expectations of a 0.8% decline. And the department-store chain is looking at July sales that will be flat to down 3%. Macy's warned that 2Q07 earnings would be in a range of 20 cents to 30 cents a share, not the 35 cents to 45 cents that it had been expecting.

Kohl's (KSS) disappointed with same-store sales slipping 4.9%, deeper than the minus-2.4% projected.

Dillard Department Stores (DDS) same-store sales slipped 1%, slightly narrower than the 1.4% retreat expected.

Saks Inc. (SKS)same-stores sales fell 5.6%, lower than estimates of a 4.1% decline.

J.C. Penney (JCP) said same-store sales fell 1.5%, but that turned out good compared with the 3.6% drop analysts were bracing for. Penney reiterated its quarterly forecast, indicating that though sales fell, the department-store chain was able to keep costs under control to protect margins.

Gap Inc. (GPS) total chain sales fell 5% compared with the 4.5% decline expected.

Ann Taylor (ANN) same-store sales stumbled 8.4% amid slow traffic into its stores and particular weakness at the Loft chain. Analysts were looking for sales to fall 4.8%.

Costco Wholesale (COST) were only slightly off expectations with a 6% gain instead of the 6.1% gain forecast by analysts.

Limited Brands (LTD) did slightly better with a 3% increase rather than the 2.9% expected.

American Eagle Outfitters (AEO) same-store sales results jumped 8% almost double expectations of a 4.4% increase. The company raised it's earnings projection by a cent.

Pacific Sunwear (PSUN) produced same-store sales growth of 4.5% beating expectations of 3.2%.

As you can see from the sample above results were a mixed bag prompting Michael Niemira chief economist for the ICSC to comment that overall, the results were "moderate," he added that:

"The results were better than we feared," and noted that Wal-Mart accounted for much of that unforeseen strength. "Beyond that, the themes were as expected" - weakness in home-related merchandise and apparel sales driven by late-month discounting and promotions.


Government to report weak retail sales for June

Whilst the large chain stores beat very low expectations in June, total retail sales are expected to be anemic when the Commerce Department reports its figures on Friday.

Economists are expecting 0.3% decline in total retail sales for the month of June after the strong 1.4% increase in May, however economists also expect May figures to be revised downwards.

Except for the quarter that followed the Katrina disaster, it would be the weakest consumer spending in more than four years.

Recent abysmal auto sales and lower consumer discretionary spending on goods such as electronics and apparel is clear evidence of a significant slowdown in private consumption.

The economic fundamentals of a depressed and weakening housing market, credit re-ratings and lower consumer spending are still firmly in place. As stocks tick higher on the back of M&A deals the bigger the disconnect grows between stock prices and economic reality.

If retail sales for June come in positive rather than the negative figure expected the market may well continue to tick higher. However the further the market rallies in the face of the deteriorating economic picture the more it is looking like a last gasp.

This webcast from marketwatch.com featuring Joe Battipaglia of Ryan, Beck & Co. sums up well the macro environment and why Thursday's retail figures are not as bullish as the market's reaction indicated.