How Does Holiday Shopping Impact Stocks?

The 2017 holiday shopping season has begun. That means Black Friday deals, long checkout lines, and a focus on the retail industry as investors try to determine the potential impacts to the stock market.

The National Retail Federation has estimated sales for the 2017 holiday season could increase between 3.6% and 4% versus 2016 sales—a solid number which is slightly above the post-crisis average of 3.4%. But what do holiday shopping forecasts mean for the stock market (and the retail sector in particular)? Stock market performance from mid-September to mid-December has historically had a high correlation with year-over-year increases in holiday retail sales. The S&P 500 Index has already gained approximately 4% since September 15, and retails sales estimates for the holiday season may give investors another reason to be optimistic.

As the chart below shows, retail seasonality doesn’t necessarily follow the shopping schedule of consumers. Since the financial crisis, the S&P Retail Select Industry Index (which includes both online and brick-and-mortar retailers) has performed well heading into the holiday season as analysts start to develop holiday shopping estimates and investor optimism rises. However, the index’s performance during December and January has historically been lackluster as stocks in the index tread water ahead of retailer earnings. February and March have been two of the strongest months on average for the index since 2009 as retailers generally release holiday season earnings over this period.

But will these patterns hold in 2017? The holiday shopping season is important for both online and brick-and-mortar retailers alike; so even if consumers shift their purchases toward online outlets, the seasonal pattern may still make sense. But it is also important to remember that volatility has been high in the retail sector this year, with the index seeing large price swings as markets try to determine winners and losers in an industry where price competition is intense, and the line between online and brick-and-mortar companies continues to blur. Given this market sentiment, it is likely that the performance of individual company stocks may be more dispersed than they have been historically, which may favor active management in the sector moving forward.

IMPORTANT DISCLOSURES

Past performance is no guarantee of future results.

The economic forecasts set forth in the presentation may not develop as predicted.

Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.

Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.

The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

This research material has been prepared by LPL Financial LLC.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit

Securities and Advisory services offered through LPL Financial LLC, a Registered Investment Advisor
Member FINRA/SIPC

Tracking #1-670643 (11/18)

Market Update: Wednesday, November 22, 2017

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Market Recap

  • Major indexes posted solid gains amid another quiet pre-holiday trading session; Tax reform remains the focus despite Congress’ recess. S&P 500 Index +0.7%, Dow +0.7%, Nasdaq +1.0%, Russell 2000 Index +1.0%.
  • Technology was the standout sector, healthcare outperformed as well; telecommunications lagged.
  • 10-year Treasury flat; yielding 2.36%.
  • NYSE breadth positive (2.1:1); avg. exchange volume (97% of 30-day avg.).
  • Commodities – Crude halted losses +0.9% to $56.94/bbl., gold bounced back from Tuesday slide (+0.5% to $1280/oz.), industrial metals mostly higher.
  • Economic data – Existing home sales slightly above expectations (5.48 million vs. 5.44 million).

Overnight & This Morning

  • U.S. stocks opened a little higher, continuing momentum from yesterday’s advance.
  • European equities up as major indexes hold close to session highs. STOXX Europe 600 +0.5%, DAX flat, CAC 40 +0.3%.
  • Asian markets advance with Hang Seng surpassing 30,000 intraday for first time in a decade. Nikkei +0.5%, Hang Seng +0.6%, Shanghai Composite +0.6%.
  • 10-year Treasury still flat; yields holding at 2.36%.
  • Commodities – Crude adding to gains (+1.6% to $57.72/bbl.) on Canadian pipeline disruptions, gold +0.2% at $1284/oz., industrial metals also adding to prior gains.
  • Economic data – U.S. jobless claims below expectations (239K vs. 240K), new durable goods orders below expectations as well (-1.2% vs. 0.4%).

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Key Insights

  • Strong October for the economy. The Chicago Fed National Activity Index, an aggregate of over 80 economic indicators that attempts to paint an overall picture of the economy each month, posted its best number in October since January 2012. Strong data over the last month is also reflected in the Citi Economic Surprise Index, which measures the performance of economic data versus economist consensus expectations, which hit a multi-year high yesterday, reaching its strongest level since early 2014. Some of the strength in the overall data has been a bounce back from post-hurricane weakness, but the surprise index indicates the strength has been better than expected. Continued economic strength would provide a positive backdrop for equities in 2018.

 

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Click Here for our detailed Weekly Economic Calendar

Wednesday

  • MBA Mortgage Applications (Nov 17)
  • Weekly Jobless Claims (Nov 18)
  • Durable Goods Orders (Oct)
  • Cap Goods Shipments & Orders (Oct)
  • of Mich. Sentiment (Nov)
  • FOMC Meeting Minutes
  • Eurozone: Consumer Confidence (Nov)

Thursday

  • Thanksgiving Day Holiday
  • Germany: GDP (Q3)
  • Germany: Imports & Exports (Q3)
  • France: Markit France Manufacturing PMI (Nov)
  • Germany: Markit Germany Manufacturing PMI (Nov)
  • Eurozone: Markit Eurozone Manufacturing PMI (Nov)
  • ECB: Account of the Monetary Policy Meeting
  • Mexico: Central Bank Monetary Policy Minutes
  • BOJ: Outright Bond Purchase
  • Japan: Nikkei Japan Manufacturing PMI (Nov)

Friday

  • Markit US Manufacturing & Services PMI (Nov)
  • Germany: Import Price Index (Oct)
  • Italy: Industrial Orders (Sep)
  • Mexico: GDP (Q3)
  • Japan: Leading Index (Sep)

Past performance is no guarantee of future results.

The economic forecasts set forth in the presentation may not develop as predicted.

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

Stock investing involves risk including loss of principal.

Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.

Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.

Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments.

Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.

Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards.

Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged.

This research material has been prepared by LPL Financial LLC.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit

Securities and Advisory services offered through LPL Financial LLC, a Registered Investment Advisor

Member FINRA/SIPC
Tracking # 1-670701

 

Growth Needs a Fiscal Response

In response to the 2008–2009 financial crisis, there was substantial intervention by the Federal Reserve (Fed) in the form of low interest rates and asset purchase programs, known as quantitative easing. For the last eight years, this one-sided monetary response has not been adequately complemented by fiscal or legislative measures. This had both intended and unintended consequences.

One result was that this recovery has been characterized by slow growth and a lackluster business environment. Many corporate decision makers were adverse to risk and tighter restrictions on lending did not help matters; thus, there was less enthusiasm for business expansion compared to what many may have expected.

Now that economic indicators are on the rise and the Fed is scaling back emergency policies, there needs to be a decisive fiscal response to support economic growth. Pro-growth legislative policies such as corporate tax cuts, increased government spending, and easing regulatory burdens could help the economy move forward and pick up steam.

In the LPL Research Outlook 2018: Return of the Business Cycle, investors can learn about the new dynamic associated with the welcome return of traditional market-driven forces shaping and propelling economic activity. The private sector can drive that dynamic, but fiscal policy must act as a catalyst to growth rather than a deterrent.

Be on the lookout for this publication—and its complementary suite of collateral—due out at the end of November.

IMPORTANT DISCLOSURES

Past performance is no guarantee of future results.

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.

The economic forecasts set forth in the presentation may not develop as predicted.

This research material has been prepared by LPL Financial LLC.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit

Securities and Advisory services offered through LPL Financial LLC, a Registered Investment Advisor
Member FINRA/SIPC

Tracking # 1-668833 (Exp. 11/18)