Investment Contrarians

New Report Shows Huge Shift in Sentiment for the Retail Sector

By for Investment Contrarians |

Sentiment for the Retail SectorThe positive jobs report last week and the revision for the previous months might be leading the latest sentiment numbers in the retail sector. A study just came out from BDO USA, LLP, stating that chief marketing officers (CMOs) surveyed within the retail sector expect a 3.7% increase in comparable sales this holiday season.

This represents the largest comparable sales increase since 2007. In comparison, the CMOs within the retail sector expected a decline of -2.7% for the 2008 holiday season, and in 2009, they only expected a small 1.6% increase. Clearly, the market sentiment for the retail sector has increased substantially over the last couple of years. (Source: “U.S. Retailers Forecast 3.7% Increase in Holiday Comparable Store Sales,” BDO, November 5, 2012.)

The report cites that the CMOs within the retail sector expect strong market sentiment for electronics, specifically for tablets. The report comes from over 100 CMOs within the retail sector. Another point revealed by the study that is quite interesting is that inventory levels will not be massively increased, despite optimistic market sentiment for this year’s holiday season. The report states that CMOs forecast a total approximate increase in inventory of one percent. This will certainly keep the retail sector lean and prevent overstocking, which would lead to massive discounting post-holiday and, in turn, a significant reduction in profit margins.

Obviously jobs and unemployment are key figures in the retail sector. Market sentiment has rebounded within the last year, as we’ve seen some improvement. Clearly the economy is nowhere near potential gross domestic product (GDP) levels, but in the last couple of months, the trends have improved enough for market personnel within the retail sector to become somewhat optimistic. While no one will know if this optimism will lead to significant growth of sales within the retail sector, the market sentiment amongst leading companies does show that there might be a change in the trend.

Chart courtesy of

This chart shows an exchange-traded fund (ETF) of the retail sector. As is quite evident, market sentiment has been extremely strong all year long. Note that the index hasn’t even touched its 200-day moving average (MA) since December 2011. As can be seen by the two converging lines, a wedge is forming that will be significant. Market sentiment will shift with the direction of the breakout from this wedge formation.

At this point, the retail sector will most likely be in a quiet period until numbers for the holiday season start coming out. Since so much of the retail sector’s profits come from the period between Thanksgiving and New Year, market sentiment might not change much until reports from the malls start flooding in and the registers start ringing in sales. Of course, consumers might not share the optimistic market sentiment of CMOs, perhaps leaving the stores empty-handed.

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