Is the worst of the retail dip over? Market expectations would certainly say so and shoppers are forecast to spend more than usual on their Christmas gifts this year after a particularly disappointing 2015.
However, big name retailers have still found profit growth as hard to come by as ever, which could leave investment bargains in the sector elusive.
Shares for the largest retail chains, including Macy’s and Best Buy, have soared on the expectation that a resurgent economy will loosen consumer purse strings and they will get a spectacular holiday quarter this year. Those share spikes have helped the S&P 500 to multiple record highs over the past fortnight.
The National Retail Federation has forecast a 4 percent expansion in holiday sales, helped by positive jobs data and significant wage increases. By comparison, 2015 holiday sales growth was a mere 2.9 percent.
Many analysts believe share prices already have the higher sales from the holiday season built in, with many of the stocks showing vast improvements in the past month. Best Buy in particular has seen a 25 percent gain this month alone. Kohls's shares are having their best drive in over 15 years.
“I don’t think the stock gains are going to necessarily put investors on guard and I doubt whether they will mean outperformance in the sector,” said Stuart Poulson, Head of Corporate trading at Nikko-Desjardins Asset Management.
“The consumer sector shouldn’t get too far ahead of itself, the shopping centres were not as full as many would expect for Black Friday. In a word, underwhelming,” Poulson continued.
According to Thomson Reuters data, which studies a selection of 20 large retailers including street stores and some online giants like Amazon, the average total return was 13 percent in 2016, while shares have soared 50 percent.
Gains in the retail industry have been fuelled by the expectation that President-elect Donald J Trump will follow through on policies that would favour a pick-up in the U.S. economy such as tax breaks, decreased regulations in the banking and healthcare sectors and a surge in infrastructure spending.
The SPDR S&P Retail exchange traded fund has been a serious outperformer since the conclusion of the race for the White House with a 13 percent gain, outpacing many other industry-tracking funds.
All this means that it’s much more difficult for investors to pick up bargains on shares, with many experts recommending companies that will benefit from the upswing in the housing market, like Home Depot.
