The holiday season is kicking off this week with Thanksgiving Day and Black Friday in the spotlight. And retailers have a tradition of tapping this fervor the most as about 25-40% of sales comes during the holiday season.
In fact, retailers have been the clear outperformers in the stock market in the week leading to Black Friday and in the days thereafter. Per Kensho, a group of S&P 500 retail stocks, on average, has generated 5% returns in the period spanning one week before to one week after Black Friday since 2007. This is compares favorably with average returns of 3% for the S&P 500 and 4.5% for consumer discretionary stocks.
This holiday season will also be no different with an expected surge in retail stocks. Retailers are splurging on promotions, early-store openings, heavy discounts, as well as free shipping on online purchases to lure customers. Additionally, encouraging economic and industry fundamentals, strong earnings as well as a bullish stock market are laying a strong foundation for the holiday season.
Encouraging Fundamentals
Growth in the U.S. economy has been steady. GDP expanded 3% year over year in the third quarter, following 3.1% growth in the second quarter. This represents the best back-to-back quarters of at least 3% growth since 2014. Unemployment dropped to the lowest level since December 2000 to 4.1%.
Americans have an optimistic view of the economy with confidence hitting the highest level in almost 17 years. The Conference Board consumer confidence index jumped to 125.9 in October from a revised 120.6 in September. Meanwhile, consumer spending, which accounts for more than two-thirds of U.S. economic activity, recorded its biggest increase in more than eight years in September. Retail sales unexpectedly rose 0.2% in October followed by a revised 1.9% jump in September.
Solid Sales Forecast
According to data compiled by the National Retail Federation (NRF), about 69% of shoppers (164 million) plan to binge during the Thanksgiving weekend. Of these shoppers, 20% plan to make their purchases on Thanksgiving Day (32 million) and 70% on Black Friday (115 million), the busiest holiday day. A substantial 43% are expected to shop on Saturday (71 million), 21% to shop on Sunday (35 million), and 48% to shop on Cyber Monday (78 million).
