Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Why the Market Needs a Big Black Friday

Tuesday, November 20th, 2012
By for Profit Confidential

Why the Market Needs a Big Black FridayThe key holiday shopping season is upon us, and I’m sure the retail sector is anxiously waiting, if not praying, for consumers to go out and spend. A strong shopping season will also go a long way to helping the economic recovery, while giving the stock market some good news.

The recent jobs reports added some optimism to the retail sector; albeit, I doubt it will be enough to drive consumers to the malls and online to spend. We need to see progressive jobs creation going forward to instill some confidence in shoppers. In the best-case scenario, if job creation rises, this would likely translate into higher sales in the retail sector.

The Thanksgiving weekend shopping season, beginning with Black Friday this Friday, is important to the retail sector, as shown in the chart below. Retail sales have increased in three straight years and the hope is that 2012 will continue the uptrend. The National Retail Federation (NRF) is optimistic and estimates this holiday shopping season will generate sales of $586 billion, up from $563 billion in 2011. (Source: “Holiday FAQ,” National Retail Federation, last accessed November 19, 2012.)

Copyright Lombardi Publishing Corporation 2012; data source:
National Retail Federation, last accessed November 19, 2012.

The monthly retail sales numbers in the retail sector are showing some encouraging signs. The Thomson Reuters Same Store Sales Index (comprising of 17 U.S. chains) increased a better-than-expected 4.7% in October, above the 4.3% estimate and up from the 4.1% advance in October 2011. (Source: “Some Retailers See Surge in ‘Sandy’-related Sales in October as Industry Remains Upbeat on Holiday Spending,” Reuters, November 2, 2012.)

There is also optimism toward “Cyber Monday,” the Monday of Thanksgiving weekend, and online spending in the retail sector. According to Adobe Systems Incorporated (NASDAQ/ADBE), online sales on Cyber Monday are estimated to rise 18% year-over-year to $2.0 billion. (Source: “Adobe Predicts Online Sales Will Reach $2 Billion This Cyber Monday, Growing by 18 Percent Over 2011,” Daily Finance via Business Wire, November 19, 2012.)

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I’m seeing some optimism returning to consumers. Consumer confidence in October came in at a four-year high of 72.2, versus 68.4 in September, according to The Conference Board. The reading is encouraging, but it’s still well below the widely accepted reading of 90 that indicates a healthy economy, and this has not materialized since December 2007, when the recession began. It looks like it will be some time until the confidence reading heads back.

The reality is that when consumers are more confident, they tend to spend more on major purchases in the retail sector, such as homes, vehicles, furniture, appliances, and travel. This will impact spending, gross domestic product (GDP) growth, and the ability of companies to expand their businesses. In China, consumer spending is massive and the China is a top region for high-end sales in the retail sector. (Read “Luxury Retailers Loving China.”)

The durable-goods orders reading for September was strong at 9.9% growth, well above the -13.2% reading in August. This means consumers are spending on goods and services that are not deemed essential to daily living, and I view this as an encouraging sign for the retail sector.

Another big plus is the strengthening housing sector that is showing strong gains in building permits and housing starts, along with rising home prices. But we need to see home prices continue to rise.

My feeling is that the retail sector could be seeing a strong holiday shopping season, and for the economy and stock market, it couldn’t come at a better time.

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George Leong - Financial Planner, ConsultantGeorge Leong, B. Comm. is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services. Add George Leong to your Google+ circles