Retailers Rally, Driving S&P 500 to Record Highs

Retailers Rally, Driving S&P 500 to Record Highs

Retailers Rally, Driving S&P 500 to Record Highs

$BBY, $M, $HD, $AMZN, $TGT

Wall Street expects consumers to open their wallets a little wider this holiday shopping season but bargains among red-hot retail stocks could be hard to find, especially as profit growth proves elusive for many big names.

Retailers, including Best Buy (NYSE:BBY), Kohls Corp and Macy’s (NYSE:M), that were hammered in last year’s disappointing Holiday Quarter have seen their shares surge recently on expectations that the worst is over, and that an improved economy will send more shoppers into their stores.

Those gains in recent days have helped push the S&P 500 to a record high.

With US consumers bolstered by wage gains and higher employment, holiday sales will grow 3.6%, National Retail Federation (NRF) predicts. Last year’s growth was a modest 3.2%, short of the federation’s 3.7% growth forecast.

Not helping matters for stores, mall crowds were relatively thin last Friday in an underwhelming start to the Holiday shopping season.

A selection of 15 large retailers that are big Black Friday players, including traditional brick-and-mortar chains and online heavyweight Amazon (NASDAQ:AMZN), averaged a total return of 12% this year, including dividends, according to the data. Best Buy’s stock has jumped 55% in Y 2016 and Macy’s surged 26%.

Since the election, that fund has been a big out performer, outpacing most other industry-tracking funds with a 12.2% gainer. The wider S&P 500 is up just over 3% in the same frame.

 Macy’s, Nordstrom and other Mall Retailers have suffered heavily in recent years due to relentless competition from Amazon.com, a trend expected to continue even as retailers refine their own online sales strategies. A consumer shift away from expensive apparel and toward vacations, home improvement and electronics has also crippled many retailers.

Forecasts from retailers are encouraging: After reporting better-than expected quarterly profit on 16 November, Target (NYSE:TGT) said it expects consumer spending to remain strong through the holidays, while Macy’s and Kohls have predicted an acceleration this quarter that could help both revive their lagging bottom lines.

Macy’s has seen Y-Y profit declines for 6 Quarters running. Kohls’ profit rose last Quarter but had fallen for the previous 4 Q’s.

Despite Target’s upbeat comments on holiday spending, its Q-4 revenue is seen falling 3%, with its net income shrinking 0.8%. Wal-Mart Stores (NYSE:WMT) on average is expected to report a 16% dive in net income, while Nordstrom’s net income is expected to fall 2.8%.

Best Buy, which is trading near a 6-year high, said it expects same-stores sales to rise or fall by 1% in the current Quarter.

Have a terrific weekend.

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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