Black Friday – Economic Contingencies
I hope everyone had a very thankful and happy Thanksgiving Day
celebration. If your family is anything like mine, you have enough
leftovers to feed a small army, and will probably be reliving the
Thanksgiving Day feast again today. The rest of the world will be out
shopping.
As you know, the day after Thanksgiving is a short trading day in the
market. For retailers all over the United States today is one of the
longest days of the year. This day is affectionately known as “Black
Friday.” It received this name because it represented the kick-off of the
holiday shopping season, a time in which most retailers generated a
significant portion of their profits.
Other real estate statistics support these thoughts as well. Foreclosures are at multi-year highs, prices are falling, inventory is rising, and permits for new home construction are reaching new lows. Clearly the real estate market is suffering. Just take a look at the Dow Jones REIT index which is down almost 25% from its high earlier this year.
This holiday season Americans are expected to spend upwards of $475
billion according to The National Retail Federation (NRF). More than
$24.6 billion will be spent on-line with another $25 billion spent in the
form of gift cards. With that much money trading hands in such a short
period of time the importance of today and the rest of the holiday
season becomes quite obvious.
If retailers post poor results for Black Friday it signals a start
of a weak holiday shopping season. The strength of the holiday
shopping season is closely tied to the success of retail companies in the
stock market. We need to watch the results for these retailers very
closely.
Wal-Mart (WMT), and J.C. Penny (JCP) have already warned about slowing sales growth this holiday season. Other retailers have followed suit. Terry Lundgren, Macy’s chairman, president and CEO, said they were in a “challenging economic environment.” He also suggested that their fourth quarter same store sales might show as much as a 2% negative growth rate.
Obviously there is some fear in today’s retail market already. Look at
the Retail HOLDRs ETF (RTH) which tracks the top 20 leading retail
companies. In the last 6 months alone, the index has fallen almost 12%
and is now near a new 52-week low.
Now here is what the newspapers and the press are glossing over.
Within the retail group, there are a few who are bucking the general
downtrend in the market. Retailers who focus on consumer electronics
might have a more positive outlook. According to The National Retail
Federation (NRF) more than 50% of consumers are asking for electronics
related items like CDs, DVDs, videos, and video games. More than 36% are looking for consumer electronics or computer-related items under the
Christmas tree.
It is hard to argue with the success that some consumer electronics
products are having. It seems like everyone wants the new iPhone, iPod, big screen HD-TV, HD-DVD player, or even game counsels like the Wii or the X-Box. I know I have almost all of those items on my own wish list.
Healthcare REITs are more closely tied to the state of the healthcare
industry than the real estate industry. They have very stable operations
and a good long term outlook- yet have been rejected by the investing
community. Here is a perfect example:
In my opinion, the most likely retailer success story will be Best
Buy (BBY). Their combination of leading edge consumer electronics,
competitive prices, and strong customer service will no doubt pack the
stores today and beyond.
Category: Bonds
