Sign in
Become a MarketWatch member today
David Callaway
Nov. 12, 2009, 2:59 a.m. EST · Recommend · Post:
View all David Callaway "º
"¹ Previous Column
Fed to markets: Let the bubble blow
First Take "º
What an obscure Dutch firm says about oil market
By David Callaway, MarketWatch
SAN FRANCISCO (MarketWatch) -- Two weeks from today, Santa Claus will make his first appearance of the year in New York City, riding his sleigh down Fifth Avenue during the Macy's Thanksgiving Day parade and reminding children, parents and even economists that Christmas is the season of miracles.
And at least according to retail stocks, the holiday shopping season could be in for one itself.
Despite unemployment grinding higher all year long -- to above 10% nationally and higher than 12% in places like California -- and despite a sour economy that is only showing marginal signs of turning around, retail shares have been among the leaders in the extraordinary market rally this year.
The S&P Retail Index /quotes/comstock/10u!rlx.x (RLX 403.86, -1.31, -0.32%) is up 45% year-to-date, and 55% in the last 12 months, vs. 18% for the Dow Jones Industrial Average /quotes/comstock/10w!i:dji/delayed (INDU 10,291, +44.29, +0.43%) and about 22% for the S&P 500 Index. /quotes/comstock/21z!i1:in\x (SPX 1,099, +5.50, +0.50%) It's up 7% so far this quarter, according to FactSet, also beating the Dow and S&P 500.
The gains are particularly interesting given that retail shares plunged around this time in each of the last two years, ahead of poor holiday shopping seasons and economic turmoil, and as leading indicators tend to do.
This year, we have the similar warnings about a dour shopping season, with news stories about tapped out and over-leveraged consumers, unemployment and concerns of a double-dip recession. Many stores reportedly have cut inventories amid worries about poor sales this holiday season. And Macy's Inc. /quotes/comstock/13*!m/quotes/nls/m (M 17.86, -1.57, -8.08%) itself saw its shares pinched for more than 8% on Wednesday when it forecast that same-store sales in the fourth quarter would be down 1% to 2% from last year's fourth quarter and holiday shopping season. See Macy's earnings story.
Indeed, expectations have been set about as low as they can go, and it's no surprise that Christmas decorations already adorn the windows of the big stores, even though that Halloween candy is still in a basket in the kitchen.
Yet even with those low expectations, shares continue to rise. Macy's shares have jumped almost 80% year-to-date. Target Corp. /quotes/comstock/13*!tgt/quotes/nls/tgt (TGT 50.11, -0.38, -0.75%) has climbed more than 40%. Gap Inc. /quotes/comstock/13*!gps/quotes/nls/gps (GPS 22.70, +0.02, +0.09%) has ratcheted up about 60%. And Amazon.com Inc. /quotes/comstock/15*!amzn/quotes/nls/amzn (AMZN 129.91, -0.24, -0.18%) shares have more than doubled. Laggards include Home Depot Inc. /quotes/comstock/13*!hd/quotes/nls/hd (HD 27.31, +0.49, +1.83%) , whose shares are up about 19%.
Of course, retailers will be among the first to benefit when the economy does turn around, so it makes sense they would lead the startling rally we've seen in most equities since they bottomed in March. So a few more days like Macy's had Wednesday, or any big sign of a return to recession, could send the sector into a tailspin.
But retail shares tend to live in a self-fulfilling world. When consumers feel good, they'll shop. The stock market right now is defying all signs of gravity. Mergers and acquisitions like the big Hewlett-Packard Co.'s /quotes/comstock/13*!hpq/quotes/nls/hpq (HPQ 50.00, +0.04, +0.08%) purchase of 3Com Corp. /quotes/comstock/15*!coms/quotes/nls/coms (COMS 5.69, +0.28, +5.18%) for $2.7 billion and Warren's Buffett's $44 billion railroad purchase last week show that companies are moving in on competition because they're worried share prices will go even higher.
Everybody in the markets is in an unrealistic frenzy of buying right now: stocks, bonds, oil, gold and emerging markets. Why not holiday gifts? As long as there isn't a major realignment of markets between now and the New Year, the good cheer is likely to extend to the Christmas shopper rambling through the malls.
That's not to say this recession is over, or that it won't turn down again. Memories of last year's crisis sting fresh with every announced layoff, such as the 1,500 job cuts reported Wednesday to come at Applied Materials Inc. /quotes/comstock/15*!amat/quotes/nls/amat (AMAT 13.25, +0.25, +1.92%) . See story on Applied's job cuts. They come almost every day now.
That's why the retailers are right to have lower expectations for the season, and to guide investors in that direction. The rally is far too fragile for big negative surprises. Like third-quarter earnings, however, these low expectations should be easy to beat as long as there are Barbie Fashionistas and Zhu Zhu Pets on the shelves, not to mention some gold jewelry at pre-rally wholesale prices.
This has been one tough year, but many economic indicators have surprised experts with their resiliency. And the market, for all the debate, continues to forecast a recovery next year. Lots of cash remains in investor pockets that could move into the markets in the New Year. In the meantime, some of it just might actually find its way to the mall.
Investors, at least, are counting on it. After all, Santa hasn't missed a Christmas yet.
David Callaway is editor-in-chief of MarketWatch.
- Kprime | 1:56 a.m. Today1:56 a.m. Nov. 12, 2009
Oil-storage company Vopak raises earnings guidance citing strong demand.
4:59 a.m. Today4:59 a.m. Nov. 12, 2009 | Comments: 5
On Retirement
The 10 vital rules for inherited IRAs
On Personal Finance
If the next bank failure is yours are you ready?
Editor's View
Retail stocks forecast holiday miracle
On the Markets
Analysis of corporate insiders' behavior
Tech Tales
What if your friends won't follow you on Twitter?
This Week in Japan
U.S., Japan spread strong-dollar myth
Writing on the Wall
Bloomberg, Yankees meet on Wall Street
Read Full Article »