The market mover this morning is the news on slowing retail due to April showers, as S&P futures trade down 5 points.  How valid is this concern though?

    In order to determine whether the market is overreacting and arbitrage is at hand, I've taken the Dow Jones and S&P Retail Indexes and compared them to the actual S&P 500 Index since 1992. 

    The resulting monthly return correlation is quite high, indicating that any retail data we get could be very indicative of short term market behavior.  The cumulative return graph displays this strong relationship well.

    The Retail HOLDRs ETF (RTH) is another liquid indicator of retail strength.  The interesting bit is that on the monthly return, the RTH ETF is actually more strongly correlated to the S&P 500 than either of the retail indexes. 

    In conclusion, retail indexes are important and comparatively accurate predictors of future market movements.  Today's news, though only provided by a cross-section of retailers, should be taken to imply some cooling of the economy before the summer months gives retail another shot in the arm.