Retailers are likely sitting on the edge as we head into the Thanksgiving weekend on Thursday, which means Black Friday is nearly here. The three days from Friday to Sunday are the most critical period in the shopping calendar for the retail sector, followed by “Cyber Monday” (the Monday after Black Friday when many retailers offer steep discounts online), which has historically been the biggest one-day online shopping event of the year.
So these four days are make-or-break for some retailers. What happens during these days could also help dictate what happens in December and 2014. And of course, what happens with consumer spending and the retail sector will dictate the gross domestic product (GDP) growth.
Yet while I was previously more positive towards the retail sector, I’m beginning to have some doubts. Not only am I worried about the weak jobs market, but confidence levels aren’t exactly high now, either. Currently, I expect the retail sector will face greater headwinds in December and early into 2014.
The reality is that the average consumer is uneasy about their economic situation, so they are nervous and hesitant to spend. This will impact the fourth-quarter GDP and make it much more difficult for investors to play the retail sector.
Retail sales advanced for the second straight month in October; albeit, at a muted pace, but it was still nonetheless better than what the market watchers expected. Sales on an ex-auto basis increased 0.5% in October, above the 0.4% Breifing.com estimate and in line with September’s reading. It was also the second straight up month for the retail sector.
But despite these advances, … Read More
As my regular readers know, over the past couple of months, I’ve repeatedly raised my concerns that the stock market is increasingly becoming out of touch with the underlying reality of our economy. Now, the latest batch of reports from companies is showing just how inflated the stock market really is.
One market segment that I have warned readers about is the retail sector. In my opinion, the retail sector has become far overvalued in terms of potential corporate earnings growth.
Now that we’re coming into the holiday season, I believe this year is going to be one of the worst for the retail sector in generating any corporate earnings at all.
It really boils down to two things: the consumer and the companies within the retail sector.
The average American, as we all know, is still getting the same wages, getting hit with a higher payroll tax this year, and is still uncertain about their future due to high unemployment levels.
Considering the situation of the average American, companies within the retail sector are literally doing everything possible to convince consumers to spend in order to increase revenues and, hopefully, generate some corporate earnings.
Unfortunately, this heavy amount of competition for fewer dollars means disappointing corporate earnings.
Target Corporation (NYSE/TGT) just recently reported its third-quarter results, with corporate earnings falling 46% year-over-year. While part of the decrease was due to a disappointing launch in Canada, much of the decline in corporate earnings was due to consumers’ unwillingness to spend. (Source: “Target Reports Third Quarter 2013 Earnings,” Target Corporation, November 21, 2013.)
You don’t have to believe me when I … Read More
In my past two commentaries, I discussed the third-quarter gross domestic product (GDP) growth and October jobs growth. Both metrics looked good on the surface, but after closer inspection, there were clear gaps.
Both of the reports suggest that consumers may not be in the spirit to spend cash this holiday shopping season. With Black Friday just around the corner, for the retail sector, this one day of the year is critical and can generate a key portion of the year’s total sales.
We are already seeing a mad dash by the retailers to open earlier on Black Friday and extend the shopping day. Some are opening at midnight, others before midnight.
At stake in the retail sector are the consumer dollars and the intense competition I expect to see, especially among the larger department stores. We may see J. C. Penney Company, Inc. (NYSE/.JCP) take one of its final gasps, as the company fights to survive with declining sales and dwindling cash.
In the retail sector department store area, I would stick with Macy’s, Inc. (NYSE/M) and Nordstrom, Inc. (NYSE/JWN). Macy’s and Nordstrom, along with Wal-Mart Stores, Inc. (NYSE/WMT) and Kohls Corporation (NYSE/KSS) will report quarterly results this week. The key to listen for in these companies’ reports is what each has to say about the upcoming holiday shopping season.
The reality is that based on the soft personal spending component of the GDP along with the lower quality of jobs in the nonfarm payrolls report, I expect the retail sector will struggle through the holiday season.
I expect heavy discounting in the retail sector to attract shoppers and … Read More
The easy money will continue to be pumped into the economy by the Federal Reserve, but the difference, I think, will be that the soft tone will have less of an impact on the stock market than in the previous years. As was widely expected and to no one’s surprise, the Federal Reserve sat on its hands and did nothing with its current bond buying. So its status quo again as we move ahead and get ready to welcome in Janet Yellen as the next chairman of the Federal Reserve.
Based on the subsequent reaction by the stock market, the news was clearly discounted. The only thing was what the Federal Reserve would say about the economic renewal.
As I have said on numerous occasions, the Federal Reserve, in spite of adding over $3.0 trillion in debt to its balance sheet, continues to see America in flux and unable to shake its demons. By this I mean the economic renewal, while in place, remains at a tepid pace. Consumer spending is just not where you want to see it, and I think the advance reading for the third-quarter gross domestic product (GDP) growth on Thursday will point to this. Also, the jobs market continues to be caught in a vacuum.
“Available data suggest that household spending and business fixed investment advanced, while the recovery in the housing sector slowed somewhat in recent months,” said the Federal Reserve. Notice the comment on the housing market which I said was heading down.
Of course, for market participants, the cloudy forecast from the Federal Reserve will likely mean the tapering of the monthly … Read More