Holiday Shopping and Retail Sector Impact

The stock market seems to be in a bullish mood as the Dow Jones Industrial Average (DJI) surged to  record highs in the weeks since the election ended. The Dow has rallied over 5% since the election, and hit a new all-time high of 19,225.29 on November 30. In the same period, the S&P 500 (SPX) trailed the Dow, but is still up around 3.6%. The market euphoria could continue if the strong sales seen on Black Friday and Cyber Monday continue through the holidays.

Black Friday and Cyber Monday Records Seen

Make your lists and check them twice. The countdown to Christmas is here and consumers are in a spending mood:

• Black Friday spending set a new record with $3.34 billion in sales, according to Adobe Digital Insights.  An impressive 21% growth year over year pushed sales quite a bit higher than forecasted sales of $3.05 billion.
• Cyber Monday became the biggest shopping day of the year, beating initial sales forecasts of $3.35 billion. Cyber Monday sales were $3.45 billion, up 12.1% from last year, according to Adobe Digital Insights.

The entire holiday season is lit up with optimistic forecasts. Total holiday sales in November and December, are forecast to climb 3.6 percent to $655.8 billion — significantly higher than the 10-year average of 2.5 percent and above the seven-year average of 3.4 percent since the economic recovery began in 2009, according to National Retail Federation data.

In the past on Black Friday, TD Ameritrade clients tended  to trade the names that you would expect increased revenues from during the holiday season like Apple Inc. AAPL (2014/15), GoPro Inc GPRO (2014), Walt Disney Co DIS (2015). This year, client’s trading was more spread out across sectors with stocks that are still experiencing market movements. The five most popular stocks traded by TD Ameritrade clients on Black Friday this year were Bank of America Corp BAC, DryShips Inc. DRYS, Freeport-McMoRan Inc FCX, Amazon.com, Inc. AMZN, and Cliffs Natural Resources Inc CLF.

On Cyber Monday, TD Ameritrade clients tend to trade more internet and tech-based companies like AAPL and AMZN. In 2014 Alibaba Group Holding Ltd BABA and GPRO were popular trades, and Netflix, Inc. NFLX was big in 2015. This year on Cyber Monday, the five heaviest traded stocks were AMZN, BAC, DRYS, AAPL, and United States Steel Corporation X. Volatility in some of these retail stocks and companies that generate a large portion of revenues during the holiday season can increase around big shopping days like Black Friday and Cyber Monday as sales results and other shopping data is released.    

While Black Friday and Cyber Monday are massive sales days, it’s important to remember they’re only just a part of the most critical time of year for retailers. According to the National Retail Federation, sales in November and December can account for as much as 30% of some retailer’s annual sales.

Brick and Mortar versus Click and Buy

It's no surprise the retail industry is in flux. The battle between brick and mortar stores and online shopping continues. The brick and mortars, like Wal-Mart Stores, Inc. WMT and Home Depot Inc HD, are attempting to adapt to the increasingly digital sales environment and still drive traffic to stores by offering options like buy online and pick-up in store. To remain competitive, many retailers have been building out massive online presences and making acquisitions to strengthen their e-commerce business. Earlier this year, Wal-Mart acquired Jet.com to scale its e-commerce business and help it compete against online retailers like Amazon. Based on recent trading, clients at TD Ameritrade seem to skew bearish on WMT, with 1.7 times as many sellers as buyers.  Clients were also net sellers of other brick and mortar retailers like HD, Best Buy Co Inc BBY, Target Corporation TGT and Macy's Inc M. This net selling could represent increasing bearish sentiment towards brick and mortar retailers, but could also be driven by profit taking after the recent positive performance in equities.  

Tech for Everyone

Across generations, it appears everyone is interested in tech right now—a trend that appears to be carrying over to investor’s portfolios. Data pulled on November 23^rd showed that TD Ameritrade clients were net buyers of both AMZN and Alphabet Inc GOOGL skewing bullish on AMZN with twice as many buyers as sellers.  And across all age groups of TD Ameritrade clients, AAPL, NFLX and AMZN are currently the three most popular traded stocks. It’s no coincidence that some of the most desired holiday gift items this year are expected to be tech based. Virtual Reality (VR) devices like Facebook Inc FB Oculus and new products like Google Home, a voice-activated speaker powered by Google Assistant (from GOOG/GOOGL), and the competing Amazon Echo (from AMZN) are expected to be popular gift items this year. Consumer excitement over these new products from companies like Google, Amazon, and Facebook could help boost revenues in the holiday season.

It's All About The Confidence Baby

The fundamental backdrop for better spending numbers this holiday season is evident. The most recent consumer sentiment survey showed rising confidence among U.S. consumers. The latest data –in November the University of Michigan's preliminary survey popped to 91.6 from October's final reading at 87.2. The preliminary results include information gathered between Oct. 27 and Election Day. The University of Michigan’s final consumer sentiment survey results for November came in at 93.8 —higher than expected largely due to increased consumer optimism following Trump’s victory.

Meanwhile, the latest retail sales number soared, suggesting Americans are already spending briskly. The October retail sales number surged 0.8%, following September's 1% rise –these gains marked the best two-month stretch of retail sales in at least two years, according to a Dow Jones report. The recent numbers help support the optimistic forecast for this year's holiday shopping season.

Time To Shop for Your Portfolio?

As consumer sentiment and the economy continues to improve, retailers and device manufacturers like Apple could benefit from increased consumer spending. Consumers tastes can change over time and it is difficult to predict what companies will benefit from different trends – and how long they will last.

One trend is clear, consumers are doing more of their shopping online than in stores. More than half of all smartphone and tablet owners used their devices to shop over the holiday weekend, according to the National Retail Federation.

Regardless of whether you’re shopping for a new stock for your portfolio or evaluating your current holdings, it’d be a good idea to dig deeper into retailers’ e-commerce strategy to see how they stack up against the competition. If the mobile shopping trend continues, which it shows no signs of slowing, companies with better e-commerce capabilities and more efficient distribution could gain an advantage over companies that aren’t adapting as quickly to the way consumers are shopping. 

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