Lots of chatter in the press about today's "dismal" retail results.
The reality is that the results were a little bit better than expected. This is manifesting itself in a rally in the retail sector. The graph above compares the S&P Retail ETF (XRT) to the Dow.
Here's how one analyst described the results:
"It looks like Black Friday gave a modest boost so instead of sales being miserable they are just terrible," said Ken Perkins, president of research company RetailMetrics LLC.
As noted in my post on Sunday (November Retail Surprise? Colder Weather and Cheaper Gas a Key Factor):
There are four reasons that we may see merely bad (but not terrible) results next week when retail sales are released: 1. Pent-up demand following the deferred spending environment in October 2. Gas prices continue to drop providing a de facto stimulus to consumers. So far, over $1 less per gallon than the same period last year. 3. Sustained cold weather across the heavily populated metro areas in the east driving demand for inelastic purchases of seasonal apparel and related non-discretionary merchandise. 4. Late month (prior to Black Friday) stock market rebound and perceived momentum/confidence from the Obama economic team announcements.
The good news is that we are seeing the effects of this "surprise" on retail stocks today.
The bad news is that going into December this weather-related tailwind will not be as strong putting us in the "downside only" environment I discussed last month.
Four reasons for potential downside surprise in December:
1. Spending on non-discretionary seasonal items largely exhausted in November and late-October
2. Elevated risk of snow events in the east through the balance of the holiday season
3. Cold weather now a negative driver of traffic – sustained cold to remain across the east through the balance of the holiday season
4. Gas dividend not as impactful (unless it continues to drop) and the positive mojo from the Obama announcements is worn out.
