Following three consecutive months of gains, tomorrow’s retail sales report is expected to reflect a May pullback. The -0.7% month-over-month (m/m) median estimate is near my projection for a 0.6% contraction, and in consideration of a sharp decline being anticipated, the “No” answers at 0% and above offer favorable risk-reward profiles, in my opinion. The “Nos” at 0%, 0.5%, 1%, 1.5% and 2% are currently available at $0.77, $0.82, $0.89, $0.94 and $0.96 and are all profitable on a result as high as 0%, which would require a significant beat of 0.7% more than the -0.7% consensus prediction. Only exceeding the Street’s forecast by a lofty and unlikely 0.8% or more, landing the figure at 0.1% or higher, will lead to losses for “Team No” at the 0% level. Finally, for those looking for a home run, the “No” answer at the -0.5% level looks attractive as well, costing just $0.24, and delivering $1.00 back to investors on a modest upside beat.
“Team No” For Industrial Production
Industrial production is near record levels but has been cooling off since its year-to-date high in February, driving a deceleration in annualized figures. The median estimate for tomorrow’s print is 1% year over year, meanwhile, my expectation is at 0.8%. I believe uncertainty in the economy last month amidst restrictive interest rates in this capital-intensive space raise the odds of a downside surprise relative to an upside beat. For this reason, I like the “No” answer at the 1.5% threshold while staying away from the “Yes” at the 0.5% level. The “No” at 1.5% offers an attractive risk-reward profile, in my view, costing just $0.82; however, I think the pricing should be ten cents higher at around $0.92. Coming in at 1.6% or above is a tall bar at this juncture considering it’s only happened once in 29 months. That’s what’s required for “Team No” to lose money here.
Source for Images: ForecastEx
Note: Prices are highest bids as of the morning of June 16, 2025. Red circle around the retail sales thresholds was inserted by J. Torres to highlight his preferred “No” answers throughout different levels.
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