Market Talk

With deflation, you can afford the ham and the cheese.

US stocks fall, after retail and PPI reports deflate the growing consensus that the worst is past, and banks tank despite Goldman’s surprisingly strong 1Q earnings.

DJIA falls 138 (1.7%) to 7920, S&P 500 drops 17 (2%) to 842, Nasdaq Comp loses 28 (1.7%) to 1626. Crude falls back under $50.

March retail sales and producer prices reports come in far worse than expectations, and that puts a big dent in the green shoots, better-than-expected, the bottom’s in crowd. Retail sales fell 1.1% in March, when they were expected to rise 0.3%.

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Gosh, remember when we used to fill this place up?

US stocks are down in the early afternoon, with all 10 of the S&P 500′s sectors falling; financials, despite Goldman Sachs’s 1Q earnings report, are falling the hardest, and consumer stocks are down sharply after dismal readings on retail sales and producer prices.

The market wants to believe the consumer has bottomed, but today’s disappointing retail numbers suggest otherwise, Pali Research says in a note, as it cut Best Buy (BBY) to sell from neutral.

After showing an improving trend in January and February, consumer electronics retailers’ numbers were the worst since December, firm says, supporting the idea that Circuit City’s (CCTYQ) liquidation pulled sales forward for BBY.

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Goldman Sachs’ (GS) terrific 1Q results and the fact that it’s already returning TARP money sets the bar pretty high for other financial firms as earnings season gets underway.

“For the rest of the banking sector, the Goldman results raise a handful of questions, not the least of which is the obvious: What do you do for an encore?” Barron’s Bob O’Brien writes.

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You said this would be easy!

The 19 US banks undergoing the so-called stress tests may pass with flying colors, or at least, colors. But they may have a harder time with a far more rigorous test: reality.

The feds drew up two scenarios and mailed them to the banks, with the instructions to “stress test” their books against the scripts.

The “baseline” scenario pictured, on average, GDP sliding 2% this year, unemployment reaching 8.4% and home prices falling 14%. The “alternative more adverse” picture had GDP sliding 3.3%, unemployment hitting 8.9% and home prices falling 22%.

You can probably see where this is going already.

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Pay no attention to the man behind the curtain.

Goldman Sachs (GS) delivered a double surprise yesterday afternoon, moving up the timing of its earnings release and reporting a bigger than expected 1Q profit. But the numbers can’t tell investors whether the gains are sustainable, or to what extent they were – how does one say this diplomatically? - manufactured.

Goldman blew the doors off consensus, posting EPS $3.39 vs Street’s $1.22. Steep yield curve helped, with most outperformance coming in fixed income, currency and commodity, or FICC, trading.

While the company will continue to benefit as long as the Fed keeps short-term interest rates near zero, 1Q’s likely a high-water mark for EPS, FBR says, as the FICC business won’t be able to repeat.

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US stock futures look weak, after Goldman Sachs surprised the market with its 1Q earnings report but left questions unanswered, and reports on retail sales and producer prices came in far worse than expected, raising fresh questions about whether the worst truly is over.

S&P 500 futures down 7.40; DJ futures down 58. 10-year rising, yield at 2.82%.

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