11/26/14   Downplaying Black Friday

Editor’s Corner

Ron Rowland

This week marks the beginning of the sprint to the finish line of 2014.  Today, our country is preparing for tomorrow’s day of thanks.  Ironically, the day after we give thanks for everything we have, we are encouraged to spend lavishly on gifts and things we do not have.  What was once a subtle shifting of gears between two holidays has evolved into a clutch popping, tire burning, head jerking start to the year-end spending blitz known as the holiday shopping season.

Black Friday derives its name from accounting lingo.  For many retailers, the day’s sales number is large enough to make them profitable (“put them in the black”) for the year.  To grab a larger share of this one-day spending spree, some retailers started opening earlier than others.  In an effort to one-up their competition, stores gradually moved their opening times earlier and earlier.  Some began welcoming shoppers at midnight, forcing anyone trying to open earlier to do so on Thanksgiving Day instead of Friday.  Some did so, and the media dubbed it Gray Thursday.  However, many consumers have declared enough is enough and are refusing to spend their dollars at these establishments.

The internet is also changing shopping habits, creating bargains in the days leading up to Thanksgiving as well as extending those sales into December.  Brick and mortar stores are fighting back as many have staged pre-Black Friday sales over the past week or more.  News reporting has moved to a constant 24-hour cycle, and it appears retailers would like to do the same.

By most accounts, this year’s holiday shopping season should be quite robust and record-setting.  Third quarter GDP was revised upward to 3.9% from the initial 3.5% estimate from a month ago.  The nation’s average price for a gallon of gasoline has dropped to just $2.81, and consumer sentiment is at a 7-year high.  The weather is always a factor, but anything less than a prolonged polar vortex should not derail the anticipated record spending.

Although the media will still be fixated on measuring the crowds and dollars spent on Friday, we believe the Black Friday benchmark has become less significant.  It’s the whole fourth quarter that matters – not just one day.

Happy Thanksgiving to all our readers.

Investor Heat Map: 11/26/14

Sectors

Each of the top five sectors posted strong momentum readings, and they are pushing this market higher.  Health Care is at the top again this week, a place it has held nine of the past thirteen weeks.  Technology climbed another notch to grab second place.  The whole sector is getting a boost as Apple (AAPL) climbs above $700 billion in market capitalization.  Industrials moved from fifth to third as transportation stocks hit new highs.  Consumer Staples remains strong despite being pushed two spots lower.  Consumer Discretionary jumped up from eighth to become one of the five strongest sectors.  Homebuilders and retailers are both benefitting from increased consumer spending.  Real Estate and Financials held steady at sixth and seventh.  Utilities slid four spots lower as it continues to digest its huge advance of October and early November.  Materials and Telecom swapped places with Materials now sitting in its highest ranked position of the past eight weeks.  Energy is well off its October lows and reduced its downside momentum, but it is still stuck in last place and is the only sector in a negative trend.

Styles

All style categories increased their momentum this week.  Growth continues to outpace Value with the three Growth categories in the upper half while Value categories are confined to the lower tier.  Large Cap Growth is on top for a second week, and Mid Cap Growth holds the #2 spot again.  Large Cap Blend and Mid Cap Blend each moved up a spot, placing the entire upper right-hand quadrant of a traditional nine-square style box in the leadership positions.  Small Cap Growth improved two positions to fifth.  Mega Cap is the lone category appearing to be out of sync with a capitalization pattern favoring larger company stocks.  However, this anomaly can be explained by a slightly larger allocation of Value stocks among the Mega Caps and the tight compression of momentum scores.  As noted earlier, the three Value categories are huddled near the bottom with Small Cap Blend mixed in amongst them.  Micro Cap sits in last place.

Global

As a reminder, all of our global categories are measured from the viewpoint of a U.S. dollar based investor.  Currency fluctuations are not hedged, making the momentum scores a combination of equity price action and the underlying currency’s strength compared to the dollar.  The U.S. extends its top-ranked streak to six weeks, while World Equity solidified its second-place ranking.  China improved a spot to third.  Canada, Europe, and EAFE were in the red a week ago but have moved to green today.  Canada climbed two spots in the process, Europe jumped four, while EAFE held steady.  Japan slid three spots, although it maintained its positive momentum score.  Yen weakness has been working against the Japan benchmark.  However, there are currency-hedged Japan funds, and if they were included in our global categories, they would be ranked above the U.S. at this time.  Emerging Markets moved two spots higher and will likely be green next week if it is able to maintain its recent improvement.  Latin America rebounded strongly the past week and moved off the bottom after owning that spot for four weeks.  Pacific ex-Japan is the new basement dweller, dropping from fifth place amid weakness in both Australian stocks and the Australian dollar.

Note:

The charts above depict both the relative strength and absolute strength of various market sectors, styles, and geographic locations on an intermediate-term basis. Each grouping is sorted (top to bottom) by relative strength. The magnitude of the displayed RSM value is a measure of absolute strength, which is our proprietary method of measuring and reporting the intermediate-term strength as an annualized value.

 


“The nation’s economic prospects are improving. The divergence between the U.S. economy and that of much of the rest of the world is striking.”

Scott Hoyt, Moody’s Analytics economist on 11/25/14


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