After a rough ride during last week’s shorted holiday trading, as Dubai reminded investors that the aftershocks of the global financial crisis continue in the commercial real estate market, investors turned their attention to slightly better than expected retail sales over the Thanksgiving weekend — the traditional start of the holiday shopping season.
Does a Black Friday for retailers mean a green Holiday season for investors?
Not necessarily, there have been years where positive fourth quarter retail sales did not bring positive results for the stock market. However, this question has the relationship backwards; it is instead the gain in the stock market that bodes well for retail sales this holiday season.
There is a very consistent relationship between stock market performance in the months of October and November leading into the holiday season and the gain in retail sales in the fourth quarter. This makes sense since the stock market is one of the best barometers of consumer confidence and, if it is rising, it stands to reason that consumers are feeling a bit more confident and willing to spend. In fact, measured statistically, the performance of the S&P 500 in the months going into the holiday season and holiday spending (retail sales excluding food and autos) have a high 0.75 correlation. If you are going to try to forecast holiday spending, it would be easy to make the case that there is only one thing you need to watch — stocks. This year the performance of stocks in October and November point to a mid-single digit gain for holiday retail sales over 2008.
Supporting the news from the services that track retail sales and traffic showing a slight gain over last year, retailer’s comments in November have been encouraging.
- Various retail companies reported better-than-expected results.
- Online sales trends have been very strong with sales estimated up 11% over the Black Friday weekend. Tight inventories have forced many to go online in search of favored styles and colors. Coremetrics, an online sales tracker, reported that the average online order amount on Black Friday rose 35% from last year.
- Given the recent trends, shipping companies reported expectations for increased activity, with one major shipping company forecasting an 11% increase over last year during the peak week for shipping this holiday season.
The resilience in retail sales is not new.
In fact, retail sales bottomed in January and have been rising steadily over most of the year. The widely watched weekly measure of retail sales from the International Council of Shopping Centers is up 3.5% year-over-year.
More from GFC, Below
While stocks are already signaling gains in sales this holiday shopping season, better-than-expected holiday sales may act as a positive for the performance of retailer stocks and the Consumer Discretionary sector as a whole. With inventories down sharply from last year, profitability may be stronger for the same amount of sales since less discounting is necessary to clear shelves. It is also good news for the recovery since a more confident consumer leads to more confidence in corporate America, which may lead to brighter prospects for job growth in 2010.
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