| Thursday, December 4, 2014 | Issue #2430 | |
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Why Consumers Are Smarter Than Wall Street Sean Brodrick, Resource Strategist, The Oxford Club
 Boy, we couldn't get past the first weekend after Thanksgiving without Wall Street having a panic attack. The problem was the National Retail Federation's Black Friday survey of consumers.
This year, it estimated holiday weekend sales were 11% lower than last year. In dollar terms, that's a difference of $6.5 billion.
Since consumer spending accounts for roughly two-thirds of America's gross domestic product, spending during Thanksgiving weekend is important.
Cue the panic. The S&P 500 dropped as much as 22 points between Black Friday and the following Monday.
But this is one that Wall Street is getting wrong, and consumers are getting very right.
What did consumers do on the four days of Black Friday weekend? More of them chose to stay home despite expanded store hours and much ballyhooed "sales."
It turns out that's the smart thing to do. Let me tell you why - and how you might profit.
A Gold-Rush Style Boom
"The place went from desolate to booming. There are quite a few millionaires now."
"It's been the opportunity of a lifetime."
"It's unexpected. A blessing."
That's just a few of the things being said about a gold-rush-style boom generating "overnight millionaires" across the country.
Even Warren Buffett is benefiting from it. He generated a "record high stock price" thanks to this boom. To find out how you can get in on it and bring in profits as high as $127K per year, go here. | |
Retailers Are Their Own Worst Enemy. Many retailers started offering Black Friday-like discounts on November 1 and launched their steep Thanksgiving weekend specials online a week ahead of time.
Heck, the best bargains weren't even on Black Friday. I've heard personal accounts that Macy's had better deals on shoes a few weeks ago than it did last Friday.
If people find good deals before Thanksgiving, they're less inclined to enter the "Thunderdome" on Black Friday. And they know they can get great deals if they wait. Speaking of which...
The Best Deals Are Yet to Come. Anyone who didn't take an amnesia pill last New Year's Eve knows that the final two weeks before Christmas are among the most promotional.
Savings.com crunched the data from past years. The deal-tracking site says you'll probably find the biggest discounts on toys on December 8 and December 19. Meanwhile, books and novelties should have their best deals on December 15, 22 and 23.
Wall Street may not remember that, but consumers do. They know the better deals are still to come. And frankly, they were probably as unimpressed with the Black Friday deals as I was.
Black Friday Isn't a Good Indicator Anyway. High Frequency Economics sent around a chart that showed that the sales on the Friday after Thanksgiving are a terrible indicator of how holiday sales as a whole will go.
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For instance, post-Thanksgiving weekend sales were lower in 2013 than in 2012, but overall retail sales in November and December were higher in 2013.
And that's not a one-off. Another study, from 2012, showed that strong sales results around Black Friday actually predict slightly weaker holiday sales overall.
The Secret Ingredient That Will Boost Holiday Sales
Wages are stagnant, up only 2.6% year over year, according to Labor Department data. So Wall Street may not be expecting too much out of consumers this holiday season. But there is a one-two punch that could knock Christmas sales out of the park.
First, more people have jobs. We can argue about what the actual unemployment rate is, but the jobs picture is improving.
Second, falling gasoline prices are giving consumers a big boost. According to GasBuddy.com, the average price of gasoline fell to $2.75 per gallon on Monday. Gasoline is now $0.53 per gallon cheaper than it was last December. Considering that about 9 billion gallons of gasoline are bought each month in the U.S., that's about $4.7 billion extra in consumer pockets in just the last month alone. Wow!
Sure, consumers have plenty of things they might spend their cash on. They might even save that money for a rainy day. But if retailers start offering killer deals, I think consumers will feel the urge to splurge. But they'll wait for the deals - showing their smarts yet again!
Big Winners From This Trend
So if consumers start spreading the Christmas cheer, who will win? Here are a few ideas...
Online Retailers. Amazon.com (Nasdaq: AMZN) dropped more than 2.5% on Monday, taking back a week of gains. That's because investors panicked about the retail numbers. But once consumers start to open their pockets, Amazon and other top-line online retailers should do great!
By the way, Amazon says unit sales of its Fire tablets tripled on Black Friday this year compared to last year. Sales of its Kindle e-reader quadrupled. Sounds like this retailer is cooking up an upside surprise.
Freight Companies. I think United Parcel Service (NYSE: UPS) was right to predict that its busiest holiday shipping day will be December 22. Likewise, FedEx (NYSE: FDX) predicted that December 15 would be its busiest day. The later people do their holiday shopping, the greater their need will be for expedited freight to get those gifts under the Christmas tree in time.
Discount Retailers. The retailers who sell to lower-income consumers have been lowering Christmas expectations for some time. I think they're scared that lack of wage growth will hurt them the most.
But their customers are the consumers who spend every extra dollar they have. And the drop in gasoline prices works like a pay raise for folks on low incomes. Low-end retailers should benefit.
Consumers who make less than $50,000 spend on average less than $400 on Christmas. That may not sound like a lot. But they represent 67% of holiday shoppers. That is a lot!
So, to sum up. Consumers are waiting for bargains. Wall Street is already in panic mode. When retailers roll out the big sales, consumers will likely show up. And that's when select industries could get a boost.
Just make sure you don't wait too long to do your own Christmas shopping. There's nothing worse than finding an "out of stock" sign when you go to pick up that perfect gift.
Good investing,
Sean
P.S. Lately I've been monitoring the movement in dozens of under-$10 stocks... looking for a particular three-stage pattern I've identified that can be incredibly profitable. I've seen it over and over: Investors who get in before the explosive third stage make a lot of money in a short period of time. And there's one little-known $2 stock that I'm confident is nearing Stage 3 right now. For more, click here. | |
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This retailer doesn't need Black Friday. It's up more than 16% in the last six weeks, with plenty of shopping days to go. And it's paid investors a "special dividend" six times in the last five years. Readers of Investment U's premium edition are learning who it is right now. Learn how to join them by clicking here. | | |
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