Checking on the Santa Claus Rally as Holiday Sales Stay Ahead of Forecasts
But retailer margins remain a concern as we enter 'Returnuary'; also better spending bodes well for these two Pro Portfolio holdings.
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The expected Santa Claus rally is so far off to a good start -- and we're about to wrap up a key stage for retailers. Here we'll take a look at progress on both fronts -- and how they might affect two of our credit card holdings.
Remember, markets in Europe are closed for Boxing Day, and so are several in the Asia-Pacific region, including Hong Kong and Australia, as we're heading for what is likely to be a thin day of trading volume. And, as we look at the market give back some of Tuesday’s gains, let’s remember the tally on the rally is one that reflects the cumulative move in the S&P 500 between Dec. 24 and Jan. 3. So there's still some time to go. (We discussed on Tuesday the reason we're watching this first part of a seasonal trifecta and what it could mean for the coming year.)
Per data from Mastercard’s Spending Pulse report, U.S. retail sales spanning in-store and online and excluding automotive increased 3.8% year over year from Nov. 1 through Dec. 24. That’s nicely ahead of the National Retail Federation’s 2024 holiday shopping forecast of up 2.5%-3.5% year over year for November and December and supports our positions in Mastercard MA and American Express AXP.
Today we enter the important last leg of the holiday shopping season -- the after-Christmas day sales that some refer to as “Returnuary.” That moniker reflects this being the busiest time of the year for returns. This year, the National Retail Federation forecasts returns to amount to 17% of all U.S. merchandise sales, roughly $890 billion in returned goods. In addition, we are already seeing our email inboxes flooded with year-end clearance events designed to entice shoppers while clearing out inventory to make room for the upcoming spring season.
Good for those with some extra shopping dry powder and gift cards, but potentially not so good for retailer margins, which were already using promotional efforts to lure shoppers ahead of the holiday. For us and our MA and AXP positions, real wage growth and aggressive discounts make for a nice spending combination.
The Portfolio is long AXP and MA.
