Retail rallies after consumers keep spending at a solid pace in March

Retail sales climbed 0.7% month-over-month in March to sail past the consensus expectation for an increase of 0.4%, but mark a deceleration from the +0.9% pace (adjusted) in February. On a year-over-year basis, retail sales were up 4.0% in March.

One of the categories that is being closely watched is the category that includes building material, garden equipment, and supplies dealers. The category saw a 0.7% month-over-month increase and 0.6% year-over-year decline in March, which may be considered a positive for Home Depot (HD) and Lowe's Companies (LOW). Earlier in the day, Telsey Advisory Group analyst Joe Feldman commented said the firm's latest Housing Scorecard reflects a housing market that has bottomed and is improving. Telsey is now more constructive on the upside for Home Depot (HD), Lowe's Companies (LOW), and Floor & Decor (FND).

The retail sales report also indicated solid momentum for general merchandise stores (+1.1% M/M, +5.7% Y/Y) and nonstore retailers (+2.7% M/M, +11.3% Y/Y). Those marks bode well for big players such as Walmart (WMT), Target (TGT), Costco (COST), and Amazon (AMZN). Meanwhile, the slump in department stores continued, with sales down again (-1.1% M/M, -2.5% Y/Y) for the group that includes Dillard's (DDS), Macy's (M), Kohl's (KSS), and Nordstrom (JWN). Grocery stores also saw slower sales growth (+0.5% M/M, +1.1% Y/Y) than the broad retail averages in data that is relevant to Kroger (KR) and Albertsons Companies (ACI).

Capital Economics Chief U.S. Economist Andrew Hunter thinks the report could add weight to the argument that the Federal Reserve will hold off on rate increases.

"Alongside the recent resurgence in employment growth, the continued resilience of consumption is another reason to suspect the Fed will wait longer before starting to cut interest rates, which now we think won’t happen until September," he noted.

The SPDR S&P Retail ETF (NYSEARCA:XRT) racked up a 1.05% gain in early trading on Monday to outpace the broad market. Notable retail gainers in early action included Lululemon (LULU) +2.11%, Foot Locker (FL) +2.10%, Dollar Tree (DLTR) +2.08%, Etsy (ETSY) +1.65% and Target (TGT) +1.55%.