Given all of the news on Retail sales — Black Friday, Cyber Monday, same store sales — I thought this might make for a good topic for Bloggers Take. So what are your thoughts on the holiday shopping season? Is it important? What are your expectations — Good bad or different ?
A Tale of Two Retails
Is retail weak? On the heels of lowered sales forecasts by Wal-Mart, that
question has moved front and center. The chart below shows the lead up to the
holiday shopping season in the broad retail ETF (XRT; blue) and in Wal-Mart
stock (WMT; red). Because Wal-Mart comprises less than 2% of the XRT fund, this
comparison gives us a nice of retail overall vs. Wal-Mart in particular. For
comparison, I’ve added Target (TGT; yellow) and equalized them in price as of
7/5/06 to show relative performance.
What we see is that retail has done well during the market rise since July,
2006. Target has been a particular winner. Overall, it’s hard to make a case
for general retail weakness. As we’ve approached the holiday period, however,
the performance of Wal-Mart has trailed considerably. This has made a fine
pairs trade for a fundamental analyst able to sort out the stronger components
of XRT, such as Target, from the Wal-Marts.
Brett Steenbarger, Traderfeed
Barry’s question is timely because we cannot recall such an intense media focus on retail sales than we have seen this year. Our sense is that trying to play the holiday season retail sales game is for the vast majority of investors a mug’s game. In short, the signal to noise ratio is far too low to generate any meaningful trade signals. The number of crosscurrents present at this time of year is difficult for even the most experienced retail analysts to follow. For instance, think about how gift cards have changed the retail game over the last few years. Gift card sales have taken on increasing importance for many retailers over the past few years. Changing trends like this happen every year. If you have you done your work on a stock or the sector, great, if not don’t get caught up in the frenzy surrounding what is supposed to be a joyous time of year.
I expect a strong holiday shopping season. I think that, post-election, consumers feel that something has changed, probably for the better.
While they don’t have a good grasp of what will be different, they have a renewed optimism in the future that will help drive holiday spending.
Stocks are up and real estate prices have not fallen as dramatically as expected in most cities. Add that to a strong Q4 for retail and what you have is a good economy with plenty of steam to carry it through early 2007. That said, I think Wall Street tends to overvalue a strong holiday shopping season. If you are contemplating an investment strategy for 2007, I would focus more on interest rates and GDP, and look to international opportunities.
Rob May, Businesspundit.com
The media as well as bulls on Silicon Investor both went gone gaga over the
black Friday numbers reported by NRF while dismissing the numbers from Wal-Mart
as "just one store". Well Wal-Mart is not just one store it is the bellweather
store for the masses. But to top things off, the much touted sales data
presented by the NRS was not really sales data at all but customer surveys that
may bear little relationship to reality. This is just sloppy reporting by nearly
everyone picking up the story, including Bloomberg.
What I fail to
understand is how Bloomberg and other places can fall for this nonsense time and
time again. This is the direct equivalent of the Charley Brown / Lucy football
scene being played every Thanksgiving in real life.
In the meantime
there was little fanfare given to the massive 8.3% collapse in durable goods.
Yes, part of that collapse was aircraft, but orders for non-defense capital
goods excluding aircraft decreased by 5.1%, after rising 3.2% in September. In
addition the index of manufacturing activity slowed to 51.2 in October, from
52.9 in September and 54.5 in August. In the overall picture, consumer credit is
declining, housing starts are plunging, manufacturing activity is slowing, auto
inventories and home inventories are rising but the story headlines latch on to
the biggest "non-event" around, Black Friday.
Mike Shedlock / Mish’s Global Economic Trend Analysis
There is some divergent opinion as to how indebted the consumer actually is. Regardless of the reality here it seems to me that plenty of people will have no hesitaion to take on another $1500 in debt to ensure a "good" holiday season.
In that context the strength of this year’s holiday does not mean much for future behavior. What is more of an indicator of future behavior is the availability of credit, which based on my mail, is still healthy.
Roger Nusbaum, Random Roger