Sources: Rates Data and Economic Calendar—Bloomberg Markets as of 12/02/14; Equity Market Returns and Fixed Income and Alternatives Data—Wells Fargo Advisers as of 12/01/14.
Black Friday and the 2014 Shopping Season
Last week as shoppers prepared for Thanksgiving and Black Friday, U.S. GDP was released and was revised higher by 40bps to read 3.9% for the third quarter of 2014 (read the full report here). This positive economic news comes at a time when gas is currently cheap at the pump and the labor market continues to moderately improve. While these conditions should help spur consumption, the consumer confidence survey for November was actually the lowest since June. Despite this reading, according to Lynn Franco of the The Conference Board, income expectations were “virtually unchanged” (read the full article here). This all leads up to an extended holiday shopping season that is two days longer than last year’s because of the way Thanksgiving falls.
The initial Black Friday figures that were released from the National Retail Federation showed sales were down 11% from last year which caused consumer discretionary stocks, as represented by the ETF, XLY in this case, to lose 1.1% in Monday’s trading. Some retail analysts, however, suggest that it’s inappropriate to look only at Friday’s sales when analyzing what ultimately proved to be a week’s worth of online and retail discounts. Jay Henderson from IBM is quoted in a December 2nd Bloomberg article saying, “It’s not like the day isn’t growing, it’s just that the additional growth is being spread more evenly on other days” (read full article here). While strong Black Friday sales are often celebrated and regarded as a bell-weather for the holiday shopping season, it’s not always a simple relationship. The Wall Street Journal recently spoke with Paul Dales of Capital Economics who provided them with the chart below: (click here for the full article)
You can see that not only does the relationship between sales on Black Friday and sales during the overall Holiday Season move in different directions some years, the degree of movement (when the trends are matched) is imperfectly correlated. This means that not only does Black Friday offer an inconsistent predictive ability but considering the increased competition spurred by online retailers, deals continue to get more and more competitive, forcing businesses to potentially sell items below their cost. This ultimately weighs on their profit margins.
Finally, with U.S. markets trading at all-time highs, it is unfortunate to hear that some individual investors have remained on the sidelines in low yielding money market accounts despite their objectives of long-term capital appreciation. This is often a behavioral side effect associated with the decreased risk appetite of investors following a significant market correction, such as the one seen in 2008.
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