Daily Gains Letter

Retail Sales Up, but Many Retail Stocks Down—What Gives?

By for Daily Gains Letter |

150313_DL_clarkWith the uptick in stock market sentiment and economic news, first-quarter earnings season is increasingly likely to be decent. Already, the earnings reports we’re getting show solid growth, particularly in stocks directly related to consumer spending.

Recently, we saw strong financial growth from Costco Wholesale Corporation (NASDAQ/COST), Cabela’s Incorporated (NYSE/CAB), and Target Corporation (NYSE/TGT). The month of February experienced solid growth in consumer spending and Wal-Mart Stores, Inc. (NYSE/WMT) should see its share price tick back up to its high before it releases its earnings report mid-May.

The Federal Reserve has actually been reporting some positive wealth trends over the last two quarters. If you believe the central bank’s statistics, U.S. household debt in the fourth quarter of 2012 grew at its strongest pace since 2008. The data basically imply a little more confidence. A positive sign for consumer spending, household net worth rose by $1.1 trillion to $66.0 trillion in the fourth quarter; we’re seeing the effects of this now in retail sales figures.

The stock market wants to keep going upward over the near term; it just needs more positive news in order to do so. Statistics from the eurozone continue to be terrible, and Britain’s recent industrial production numbers were exceedingly bad. That county is likely to experience continued recession this year.

The picture in the retail/merchandizing sector of the stock market isn’t uniform. You have Macys, Inc. (NYSE/M) in a steady uptrend, very close to its all-time record high, but J. C. Penney Company, Inc. (NYSE/JCP) is getting killed. Macy’s chart is below:

dl_03152013-image001Chart courtesy of www.StockCharts.com


On the stock market, Sears Holdings Corporation (NASDAQ/SHLD) has been in a long-term downtrend since 2007, and lower-end discount stores have turned downward.

So consumer spending is taking place, but there is a real shift going on among big retailers. There’s also a lot of choppiness in the major brand manufacturers of clothing and related gear. Sales for Columbia Sportswear Company (NASDAQ/COLM) dropped in its latest quarter, but earnings rose, sending the stock’s price higher. Aeropostale, Inc. (NYSE/ARO) is way down on the stock market, but The Gap, Inc. (NYSE/GAP) is going up. The lack of uniformity in the retail group definitely signals that consumer spending still isn’t that robust.

Dick’s Sporting Goods, Inc. (NYSE/DKS) plummeted on the stock market after coming in below expectations, but many Wall Street upgrades gave the company another bounce. Consumer spending definitely increased in February, but there’s no uniformity to its rise, suggesting that the data is possibly a one-month wonder. Time will tell.

The stock market tends to move upward in advance of good news. Investors bet on hope and sell on news. In the retail landscape, a lot of stocks have been trending lower lately, even though recent data on consumer spending shows growth. The disconnect, I believe, is at the high end. Lofty stock market levels give wealthier individuals confidence to boost their consumer spending. But the average consumer is stuck with higher taxes, rising gas prices, and lower disposable income. That’s the real “Great Rotation” taking place.

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