11/27/13   Consumption Takes Center Stage

Editor’s Corner

Ron Rowland

The largest annual display of American consumerism is here.  Both online and offline stores are getting ready for the season that can make or break their bottom line.  Stores will compete for the attention of shoppers, and shoppers will be in search of the best deals.  Yes, consumption will take center stage at both the dinner table and the retail table.

With Thanksgiving coming as late in the moth as is possible, retailers are a bit worried about the length of the holiday shopping season.  The yearly rush to fill up shopping baskets will have fewer days and one less weekend this year.  It will be a test of consumers’ mettle to see if they will fit what is usually five weeks of holiday shopping into four.  We thought about suggesting a proposal moving Christmas to the last Monday in December to get in as many weekends as possible, but we were afraid someone might actually take up the idea.

Retailers are likely not encouraged by reports that consumer confidence seems to be a bit short as well.  Analysts were expecting a slight increase in November, but instead the Consumer Confidence Index fell for the third straight month.  It is down to its lowest level in seven months.  Uncertainty regarding the next battle in the national fiscal drama is only a few weeks away and isn’t helping any.  Neither are recent cuts in food stamps and unemployment compensation.

Storms in the northeast part of the country are threatening to dump plenty of precipitation and bring colder than normal weather, but with it clearing on Thursday, it may not have much of an impact on shoppers to get out and about to start their holiday spending.  Even if this week’s storm doesn’t slow the tide of shoppers, retailers are on edge as they certainly do not want to see a major storm system come through on any of the four critical weekends between Thanksgiving and Christmas.

Despite all this, the National Retail Federation is projecting a 3.9% increase in holiday sales over 2012.  The average increase over the last 10 years was 3.3%, so it is looking for slightly above average growth this year.  Unfortunately, half of the expected increase will simply be due to inflation.

A few retailers rely on the holiday shopping season for up to 40% in annual sales.  Last year, the season represented about 19% of sales in the entire retail industry.  E-commerce business increased 17.5% over a year ago and now accounts for 5.9% of all retail sales, which is a record high.  There is no reason to expect that Cyber Monday will not pull in its fair share of bargain hunters this year.

Last year, a few retailers opened on Thanksgiving Day.  This year, the trend continues and even has a name, Brown Thursday.  The trend may backfire as mumbles can be heard though the industry that some shoppers will boycott stores requiring employees to work on a holiday just to get the cash registers ringing.  We are also seeing stores offering intense discounts in the days leading up to Thanksgiving.  Some are even better than actual Black Friday deals from last year.  The fight is on among retailers for each and every consumer dollar.

Have a Happy Thanksgiving and safe travels to those venturing out to visit family and friends.

Investor Heat Map: 11/27/13


Health Care takes the top Sector ranking today, climbing from its third-place perch of a week ago.  ObamaCare brings uncertainty to the group, and uncertainty usually translates to underperformance, but anyone betting against Health Care recently has had their hat handed to them.  Industrials, the former leader, moved down to second and remains in a strong and steady uptrend.  Consumer Discretionary, which contains the all-important retailing industry, posted momentum improvements yet slipped in the relative rankings to third.  Financials jumped from eighth to fourth on strength in broker-dealers and banking.  Technology held its fifth place spot while Materials moved from being ahead to behind Technology.  Consumer Staples and Energy are low in the relative rankings while displaying good absolute strength.  Strength begins to decline noticeably as we reach the bottom three sectors.  Telecom gave up some ground this week, but Utilities took an even harder hit and is now in danger of flipping over to a negative trend.  Real Estate weakened more and remains in last place.


A week ago, relative strength among the Style categories was in near-perfect alignment with market capitalization.  Mega Cap and the three Large Cap categories were on top, Micro Cap and the three Small Cap categories were on the bottom, and the three Mid Caps were wedged in the middle.  This week, the market is favoring extremism.  Micro-Cap, the category of extremely small stocks, is on top, and Mega-Cap, the group of extremely large stocks, is close behind.  The pattern doesn’t end there, as the next six places are occupied by a mixture of Large Cap and Small Cap designations.  Almost by definition, the Mid Cap categories represent the least-extreme stocks – not too big and not too little.  Completing the new extremism alignment, the three Mid Cap categories are neatly stacked at the bottom.


China vaulted to the top of the Global rankings a week ago, and it is holding on to its new position this week.  Sometimes it’s hard to pinpoint the source of a rally’s strength, but we are of the belief that China’s recent relaxation of its one-child policy is the current catalyst.  The ranking of the top five categories is identical to last week’s lineup.  Following China is Europe, the U.S., World Equity, and EAFE.  For the most part, the U.S. dollar traded within a 1% range over the past 5 trading days, minimizing currency effects.  The primary exceptions were weakness in the Japanese yen and Canadian dollar.  Japan’s export-driven economy tends to benefit from a weaker yen, so Japan only slipped a notch.  Canada’s currency decline translated into a Canadian stock market decline, causing a slip in the rankings.  The bottom three categories suffered additional weakness, nearly eliminating the momentum of Pacific ex-Japan and Emerging Markets.  Latin America remains the weakest region and resumed its negative trend this week.


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.


“Forget Black Friday, now it’s Forever Friday.”

Marshall Cohen, analyst at retailing consultancy NPD Group, 11/26/13


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