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Alex Kimani

Alex Kimani

Writer, Divergente Research LLC

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Divergente Research LLC and Safehaven.com. 

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Can Black Friday Save The Markets?

Black Friday

The equity markets have been gloomy in the run-up to holiday season—to say the least. Prior to Thanksgiving Day, the pivotal retail sector had posted eight straight days of losses, the sector’s longest losing streak on record.

But the Thanksgiving holiday is regarded as one of the most important retail and spending seasons on the U.S. calendar, and Black Friday sales constitute a significant part of annual sales for many retailers. They can set the pace for the rest of season.

Thankfully, it appears that investors are in luck this time around …

Most retail metrics are pointing to very strong holiday sales--something that seems to be rubbing off on the broader market. According to the National Retail Federation, a total of 164M Americans are expected to go shopping in the five-day holiday spanning Thanksgiving Day through Cyber Monday.

And, so far, so good.

Sales started surging as the holidays drew near, with Monday becoming the first day of the month to break $2 billion. And, it keeps getting better.

Wednesday sales on the eve of Thanksgiving surged 32 percent Y/Y to $2.4B. Meanwhile, Adobe Analytics data shows that spending on Thanksgiving Day clocked in at $406M by 10am ET, placing the day’s sales on pace to hit a new record of $3.5B, a 23% Y/Y increase.

Electronics, including Amazon Echo Speakers, Amazon Fire TVs and Nintendo consoles, have been among the top sellers so far this month. Adobe expects deep discounts to be offered on TVs, computers and tablets to boost sales further.

So far, actual sales have far outpaced estimates by analysts.



Source: Bloomberg

Stock Markets Respond

There’s a clear trend of very strong sales going on here, which underscores the continuing strength of the economy.

Now, one strategist has predicted bigger gains yet to come.

Matt Maley, equity strategist at Miller Tabak, sees further near-term upside in the retail sector citing wage growth and lower gasoline prices. Not all retailers will be partaking in the holiday bounty, though. The lion’s share of those holiday sales are flowing through online channels. Related: Buffett Bets Big On Banking Stocks

Online retail shopping in the month of November has been strong, with consumers spending $31.9B during the first 20 days--a robust 17 percent Y/Y growth. But as Michael Bapis, MD Vios Advisors at Rockefeller Capital Management told Trading Nation, brick-and-mortar retailers still face a high bar trying to increase customer traffic.

Not surprisingly, stock markets have sat up and taken notice. XRT, a popular ETF that tracks retail stocks, has managed to snap the losing streak to post a 1.75 percent gain on Thursday’s session. Its technology counterpart, XLK, is up 0.7 percent; the S&P 500 is up 0.3 percent while the Dow Jones is flat on the day.

The holiday bullishness, however, could be down to a seasonal stock market trend.

Specifically, the pre-holiday effect is a well documented anomalous trend where stock prices tend to climb on the final trading day preceding a holiday, often by a factor of more than 10 times, compared to regular days of the year.

One theory says the rise is a natural phenomenon that is triggered by a general air of optimism that accompanies the holiday season. Additionally, the stock markets tend to be quieter on the days preceding a holiday, which negatively impacts liquidity.

Whatever the reason behind it, the impressive holiday sales confirm the theory that the ongoing stock sell-off is not the result of weak economic fundamentals but rather due to fears that the good times might not last forever.

Eventually, strong fundamentals could prevail.

By Alex Kimani for Safehaven.com

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