What could go wrong … where is the “fly in the ointment”?
To be sure, there are some potential headwinds that could serve to mute the overall Holiday sales experience. One that may dampen the reported percentage gains for the Thanksgiving weekend is the fact that many retailers have started to “jump the gun” and offer deals earlier and earlier to get customers attention and to smooth the lumpy trends emanating from the Thanksgiving rush.
Another more important factor that could loom large in the success of this Holiday Season is the recent price action of the stock market as well as its volatility. As this article was compiled on 11/21/18, the S&P 500 average was down for the year, and the fourth quarter action had been brutal, with the S&P 500 down a jolting 8.9% since the beginning of September. The firm ISI has historically noted the correlation of Christmas sales and the performance of the market citing Alan Greenspan’s work in a paper he wrote way back in 1959. The correlation this year suggests that Christmas sales could be down 6.3% for the season, given the fourth-quarter-to-date decline of 8.9% for the S&P [The formula is 0.8 + (0.8 x the change in the S&P)].
Could that give shoppers cold feet? We think not given the strength of employment and wages and the other aspects we have noted above. In particular, we feel the buildup of wealth from earlier stock market gains has been epic as evidenced by the chart on consumer net worth below which should be enough to buffer any decline.
Others may question whether tariffs on a wide range of consumer goods from China that took place in September might have an impact. We believe that retailers imported record amounts of merchandise ahead of the tariffs this past summer, so the potential impact should be minimal.
Our Conclusion
As stated above, we feel estimates will be met or exceeded and it should be a noteworthy, happy retailer Christmas season.
J. Richard Fredericks is founding partner at Main Management, a participant in the ETF Strategist Channel.
A pioneer in managing all-ETF portfolios, Main Management LLC is committed to delivering liquid, transparent and cost-effective investment solutions. By combining asset allocation insights with smart implementation vehicles, Main Management offers a unique approach that translates into distinct advantages for our clients, including diversification, cost efficiency, tax awareness and transparency. For more information, visit: http://www.mainmgt.com.