Tis The Season

With the holiday season rapidly approaching, retailers think shoppers might be a bit jollier and giving this year. October brought the biggest increase in job creation this year. With the unemployment rate continuing to fall along with gas prices, consumers will have more money in their pockets this year for holiday shopping. Big-name retailers expect to see an increase in the earnings report this holiday season! Sean Lynch, co-head of the global equity strategy at Wells Fargo Investment Institute in Omaha believes, “We could be set up for a little bit of a stock market rally here into year-end.”

In August, the consumer names fell to a new year’s low, and big-name companies have been mostly absent from the S&P 500. The retailers are set to report earnings this Friday the 13th, and are hoping that they regain the leadership that was lost to technology in the last market rally. A .3% increase is expected to show. Art Hogan, chief market strategist at Wunderlich Securities in New York, has high hopes for this year. He says, “Lower gas prices continue to add to the wallet and the consumer’s level of confidence.” He hopes to also see a rise in the retail stock market.

Consumer stocks .SPLRCD (S&P 500 Consumer Discretionary Sector) still continue to have the best-performing sector with nearly a 13% gain. However, Technology and Energy have added the most to the S&P 500 and are still heading the list. Shopping

Amazon has been one of the only consumer companies to make the list, as it has been one of the top-performing stocks all year this year. It will most likely continue to top the list as we proceed into the holiday season. Why? Well, SPXRT (S&P 500 Retailing) has been steadily increasing this year. It has rose a whopping 27%. With this increase and the expectations of the retail sales for this holiday season, we could very possibly see a new record high. Shopping

Unfortunately, it is not all sunshine and rainbows for the retail industry. October did, in fact, bring a decrease in unemployment as well as gas prices. In October we also had a rise in wages of 2.5%! This is great news, since there has been no movement whatsoever. 2.5% is the biggest increase we have seen since July 2009.

Retail industries have gotten used to very inexpensive labor the past few years. There is concern that with the rise in wages, retailers may be cutting earnings per share. This has already been seen last month, when Wal-Mart warned it could cut earnings per share as much as 12% next fiscal year. What companies will really feel the effect?

Jared Woodard, senior equity derivative strategist at BGC Partners in New York, said, “The biggest vulnerabilities are in stores that aren’t selling high margin goods like discount apparel, T.J. Maxx, Ross Stores, and others that really depend on volume and need high head count to get the job done.”We think T.J. Maxx and Ross are perfect examples. These stores rank among the lowest in revenue per employee. They only reported data near $150,000 to $160,000 for the last year! In comparison, Amazon sold just above $650,000 per employee last year, more than 3 times what the bottom companies sold. Shopping