Holiday Sales Already Underway; Markets Rally on Global Stimulus

in Market Commentary by

Market Digest – Week Ending 11/21

Global stocks started the week mixed. Some positive economic data and earnings reports pushed US equities higher through Thursday, while foreign stocks remained modestly down for the week. However, international markets rebounded sharply Friday after China’s central bank cut interest rates and ECB President Mario Draghi stood ready to expand stimulus measures. Emerging Markets led the rally, but the S&P 500 was still able to post another record high. The news out of China also drove the US dollar down against many commodity exporting countries, although it strengthened against the euro. Bonds were relatively flat for the week.

Weekly Returns:

S&P 500: 2,063 (+1.2%)
FTSE All-World ex-US: (+1.1%)
US 10 Year Treasury Yield: 2.31% (-0.01%)
Gold: $1,201 (+1.0%)
USD/EUR: $1.239 (-1.0%)

Major Events:                 

  • Monday – The first day of trading commenced for the Shanghai-Hong Kong Stock Connect, allowing foreign investors direct access to certain Chinese companies.
  • Wednesday – Shares of Target rallied after the firm posted a surprise increase in profit, coupled with its highest sales growth in 2 years.
  • Thursday – Big-box retailer Best Buy reported better than expected third quarter results, leading shares higher in Thursday’s trading.
  • Thursday – Discount retailer Dollar Tree beat earnings expectations and boosted its full year outlook.
  • Thursday – President Barack Obama announced his new immigration policy, which was met with fierce criticism by Republican Party leaders.
  • Friday – Global stocks rallied after China’s central bank cut interest rates and the ECB’s Mario Draghi reaffirmed his willingness to boost stimulus measures.

Our take:

It seems to start earlier every year. In the past it was just before Thanksgiving, but this year it happened when the clock struck midnight on Halloween. Storefronts instantaneously transformed into winter wonderlands, complete with fake snow-covered trees, bright colorful lights, and massive signs promoting holiday sales. It just felt wrong, especially in San Francisco when the weather was still in the mid 70’s in late October. A major driver of this behavior has been the gradual pace of the current economic recovery. Many retailers are in a perpetual state of fear that consumer demand will wane and put a fork in those much needed holiday sales. As such, they’re doing their best to extend the holiday season as much as possible.

Will the US consumer pull through this year? Tough to say, but there were some encouraging signs out of retailers this week. Target and Dollar Tree both beat earnings expectations, while industry bellwether Best Buy posted its strongest sales growth in more than four years. Much of this was due to better marketing and strong demand for the iPhone, but it’s possible consumers are getting more relaxed with their wallets. Moreover, we continue to see improvements in the labor market.

So if you have that holiday shopping itch, don’t feel like you need to wait until after Thanksgiving to find the best deals. Save your Black Friday body armor for another battle. The Wall Street Journal even keeps a Christmas Sales Tracker, and in 2013 it showed the steepest discounts came on the Monday before Thanksgiving. More so than Black Friday or Cyber Monday, which both come after the holiday. I, for one, detest fighting crowds. So if this new, prolonged holiday season means I can get my deals early (and avoid a shopping nightmare), maybe it’s not so bad after all……

Happy shopping!

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Brendan Erne, CFA
Brendan Erne serves as the Portfolio Management Team Leader with Personal Capital Advisors. He has over 15 years of industry experience, spanning almost all levels of the investment process, including several years at Fisher Investments as an equity analyst covering the Technology and Telecommunications sectors. He also co-managed a large cap growth portfolio and co-authored Fisher Investments on Technology, published by John Wiley & Sons. Brendan is a CFA charterholder.
Brendan Erne, CFA

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