In the five days since the presidential election, the S&P 500, Dow and Nasdaq are all down by more than 2%. What gives?
In short, stocks hate uncertainty - and we keep racing from one unknown to the next. First, the presidential election. Now the Fiscal Cliff - the massive tax hikes and budget cuts set to automatically kick in at the end of the year, unless Congress works out a compromise.
Without some sort of deal, the economy's destined to reverse course. In other words, we're currently riding shotgun on a crash course with a recession. And it's up to the drivers - fiercely partisan politicians - to steer us to safety. (Scary prospect, huh?)
Well, stop fretting. We really have nothing to worry about. After all, we've been to this movie before, folks. It's like the scene in "Star Wars" where Hans Solo, Luke Skywalker, Princess Leia and Chewbacca get stuck in the garbage compactor in the Death Star. The walls keep closing in, threatening to crush them. And then they escape with only seconds to spare.
The economy found itself in a similarly precarious position last summer - when Congress held it hostage while politicians hemmed and hawed about raising the debt ceiling. Then they finally did. You can expect a repeat performance this time around, with Congress miraculously reaching a last-minute deal.
That means we should treat the current market swoon as an increasingly attractive entry point. As always, we want to allocate our capital where it's going to have the most upside potential. And all signs point to one sector in particular providing the best short-term bang for our buck.
Holiday Shopping Spree Ahead
As you know, Thanksgiving's right around the bend. And besides the turkey and pumpkin pie, another sign of the season is holiday shopping.
Given the current economic environment, though, you might think we're in store for a lot of stockings stuffed with coal. But you'd be wrong. The fundamentals heading into this holiday season couldn't be stronger.
- Consumer spending increased 0.8% in September, the highest gain since February.
- October same-store retail sales surged 4.7%, ahead of expectations, according to Thomson Reuters.
- The Consumer Confidence Index keeps building momentum, too, ending October at its highest level since the recession hit. And what do happy consumers do? Spend, spend, spend!
Such compelling tailwinds aren't going unnoticed, either. The National Retail Federation just issued its most bullish holiday shopping forecast since the recession. It expects sales to increase over 4.1% to $586 billion.
And retailers expect the malls to be packed, too. Why else would Macy's (NYSE: M) be announcing plans to hire more seasonal workers than last year? In fact, according to a survey by the Hay Group, 36% of retailers plan to employ more holiday staff this year, up from 10% in 2011.
Bottom line: Retailers are set for one of their best winter windfalls in a long time. And there's no reason we shouldn't share in the gains. Accordingly, I recommend focusing on companies that are significantly leveraged to the holiday shopping season.