It seems impossible to draw anything but an overwhelmingly positive conclusion from Tuesday’s  report. But there is another way to look at the same data. Namely, what is the total amount of retail sales activity occurring in each month? This, after all, is what factors into GDP calculations and what drives business activity and company earnings. And by this measure? Well, the story changes a bit.

The rebound in May was still dramatic, but the overall level of retail sales activity in the economy remains much lower now than in January before Covid-19 became a concern for the U.S. public. May’s level of retail sales activity is the same as it was in the Fall of 2017, almost 3 years and $1.9 trillion (or around 10% of GDP growth) ago.

For now, the topline narrative is what’s propelling markets higher and fueling optimism on Wall Street. But eventually the second one will take over, and it will be critical to look at actual levels of activity — not rates of growth. In our view, as the shockingly large percentage changes we’re seeing today start to decrease to more typical values, the focus of equity investors will shift away from rates of change to levels of activity. Where that level of activity settles is crucial to determining if corporate earnings can support the rebound in equity prices, or if markets have run too far too fast.

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