Market Wrap-up for Nov. 25 - Retail in Focus Ahead of Black Friday

Market Wrap-up for Nov. 25 – Retail in Focus Ahead of Black Friday


U.S. equity markets added gains this morning after the Commerce Department said that U.S. GDP grew at an annual rate of 3.9% in the third quarter, beating analyst expectations of 3.3%. While this data is obviously a good sign for the domestic economy, investors should still realize that stocks have had an incredible run already.

Today, instead of looking at the broader market, I’d like to zero in on a particular sector that investors should certainly keep an eye on in the next few weeks: retail.

Analysts Are Optimistic About This Holiday Season

With the holiday season upon us, and Black Friday and Cyber Monday only a few days away, we’ll be looking closely at the retailers, many of which make a significant portion of revenues during this time of year.

This coming weekend alone, the National Retail Federation estimates that roughly 140 million shoppers will take advantage of Thanksgiving weekend deals in stores and online (this does not include Cyber Monday). For the entire holiday season, the NRF predicts a 4.1% growth in sales for November and December when compared to last year. That growth would put total spending at $616.9 billion, which, according to the NRF, is roughly 19% of retailers’ total earnings for the year.

Breaking down those figures a bit more, the NRF sees in-store sales increasing 4.1% over 2013, while online sales growth is expected to rise 8% to 11%. Getting a bit more granular, the survey showed that average Americans celebrating Christmas, Kwanzaa, and/or Hanukkah will spend $804.42 on gifts this season, up 5% from last year’s actual $767.27 average.

It is important to note, however, that not all analysts agree with the NRF on holiday forecasts. PricewaterhouseCoopers, for example, thinks household spending during the holidays will decline 6.9% this year, as consumers are finding that limited disposable income and a rising cost of living are among the top worries.

Echoing this sentiment, Deloitte also found that surveyors are still a bit concerned with the “slowly recovering” economy, though their forecasts are more consistent with the NRF, estimating an uptick of 4%-4.5% on holiday spending.

What to Watch

Typically, retail sales figures for Thanksgiving weekend come in sometime early next week, though investors will have to wait a bit longer to see sales results from individual companies. Given just how much certain retailers rely on the holiday shopping season, fourth quarter earnings results (which are released in early 2015) will give the best picture of the industry’s overall performance.

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