Today's Market WrapUp 11.15.2007 Mon Tue Wed Thu Fri Goldberg Archive Tangible
Market Evidence - Consumers Favor Saving Over Cachet
This year, mid range US consumers are no longer feeling as emboldened as they have in recent years. They are joining their lower income counterparts in the discount chains such as Costco and Wal-Mart, and forgoing the classier environs as Nordstrom and Macy’s. With the holiday gift giving season upon us, this marks the first year in five that such a tangible change in behavior has occurred, and the stock market is clearly speaking this truth in its market action. It is clear – the US consumer is under pressure. Consider the 5-year chart of mid-range department store, Nordstrom, in the chart below. The blue arrows emphasize the beginning of October action over the last 5 years. Each time the market (correctly) anticipated a robust retail season with bullish action into and/or after October 1st. This year by contrast, the market is shouting a much different story - the consumer is under pressure.
The market is telling a story about the consumer’s behavior; namely that they are trying to maintain a similar lifestyle by sacrificing cachet for savings. Consider the comparison of class versus value in the table below. I’ve compared by Relative Price Strength (RS), two classes of retailers where one might consider buying a coat or a coffee maker. The RS is calculated by comparing its price change over the past 12 months to that of all other stocks considered. Results (from Investors Business Daily) are listed on a scale from 1 to 99, with 99 being the strongest. An RS Rating of 99 is the highest possible and means the stock has outperformed 99 percent of all stocks considered in the past 12 months. An RS Rating of 1 means nearly all other issues have done better. Market leaders usually rate 80 or higher.
The value retailers are clearly outperforming those that may be considered under the category of “mid-range cachet.” The forward looking market is telling us that the consumer has finally met its match – inflation. These results even lead to possible trading/hedging strategies for consideration going into year’s end. Today’s Market The market was down today on progressively lower volume than the last 3 days, and it still hasn’t given up Tuesday’s entire rally. This suggests that a short term rally may be coming. Today, the S&P 500 finished well off of its low.
If such a rally materializes, it will likely provide a short term tail wind behind strong US discount retailer Costco, which was up today in a down market.
A cachet retailer, Williams Sonoma (WSM) reported a slow quarter and a disappointing outlook. It has been forming a long term head-and-shoulders pattern, and there was every opportunity to complete this important pattern. Yet it held tough (for now).
Dillards didn’t hold so tough today or this month. It’s down almost 21% for the month of November. The US consumer is under pressure.
The US consumer is under pressure. Have a great evening. Martin Goldberg Copyright © 2007 All rights reserved. CONTACT
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