The equity market managed to put together a winning session yesterday, underpinned by headlines that BRIC countries are considering buying euro zone debt and strong showings from the transportation (+3.4%) and semiconductor sectors (+2.0%) -- two areas known for their leading indicator status.

The outperformance of the semis is striking given that we have heard several companies recently lower revenue guidance for the third quarter.  Be that as it may, the Philadelphia Semiconductor Index (SOX) has risen 11.3% since August 22 versus a 4.4% gain for the S&P 500.  The Dow Jones Transportation Average (DJTA), meanwhile, has increased 6.8% over the same period.

It would be remiss not to add that both areas underperformed the broader market leading up to the August 22 close.  Between July 22 and August 22, the DJTA and SOX declined 22% and 19%, respectively, versus the S&P 500, which declined 17%.

Their recent outperformance then could be seen as little more than a bargain-hunting bounce from oversold conditions... or it could be something more. 

At the moment, the DJTA and SOX are acting as if the recession concerns are overblown, but there is no definitive read in that because one could have easily made the case that their underperformance leading up to August 22 substantiated the idea that the recession concerns were legitimate.

Both areas should be watched carefully in conjunction with incoming economic data that will either mitigate fears of a double-dip recession or play into them.

We interrupt this message to report that Europe isn't going haywire this morning (we did all we could not to lead with this news just to mix things up a bit).  In fact, most European bourses are posting gains between 1% and 3% after Moody's came out and downgraded the credit ratings of Societe Generale and Credit Agricole.

Talk of a eurobond proposal and optimism ahead of a much publicized conference call between the leaders of Germany, France, and Greece appear to be acting as supportive influences -- that and some likely short covering.

In any event, the uplift in Europe and speculation that the Sisters of Mercy Pinochle Club is contemplating buying euro zone debt have helped support the S&P futures, which are trading 0.5% above fair value.

This morning's economic data put a bit of a dent in what had been a stronger futures trade.  In particular, the Retail Sales report for August did not live up to expectations.

According to the Department of Commerce, retail sales were virtually unchanged in August and were up 0.1%, excluding autos.  The Briefing.com consensus estimates called for increases of 0.2% and 0.3%, respectively.  In addition, retail sales in July were indicated to be up 0.3% versus the prior report that showed an increase of 0.5%.

The breakdown for August was somewhat mixed, but not a total disaster as some had thought given the weak employment report for August and the plunge in consumer confidence associated with the debt ceiling negotiations.  On that score, the market could ultimately find reason to be encouraged by this report. 

Weakness was seen in a number of discretionary spending areas, led by a 2.2% decline in miscellaneous store retailers and a 0.7% drop in sales at clothing and clothing accessories stores.  Conversely, there was some surprising strength at electronics and appliance stores (+0.5%), as well as at sporting goods, hobby, book and music stores (+2.4%).

Gasoline station sales were up a modest 0.3%.

Separately, the August PPI report brought some reasonably good news on the inflation front.  Producer prices were unchanged in August and were up 0.1%, excluding food and energy.  That was pretty much in-line with consensus estimates.

A 1.0% decrease in prices for finished energy goods offset a 1.1% increase in finished consumer foods prices.  Following the August report, prices for finished goods are up 6.5% year-over-year.  That is still high, yet it is improved from the 7.3% increase seen in May and is the smallest year-over-year advance since March 2011.

Core PPI was pushed up largely by a 1.4% jump in the index for tires and higher prices for radio and television communication equipment.  Core PPI is up 2.5% year-over-year.

The PPI data should be a placating factor for the Federal Reserve and will not create any undue inflation alarm ahead of the CPI report on Thursday.

--Patrick J. O'Hare, Briefing.com

Patrick J. O'Hare is Chief Market Analyst for Briefing Research, Briefing.com's institutional research service. To request a free trial, please email researchsales@briefing.com.