This rally has taken everything up, so it is difficult to discern what is up on its own merits, and what is up due to the tidal wave of liquidity. However, as American society becomes more bifurcated, one theme if you are a very long term investor who wants to remain involved with domestic names is to focus on the very low end of the American consumer, or the high end. The middle is being eviscerated. [Sep 7, 2009: Citigroup 2006 - America, A Modern Day Plutonomy]
As many of the former middle class are forced downward in lifestyle the companies who cater to them have seen their stocks make very nice runs the past few years. However, little known is the majority of discretionary income spending in America is now in the upper 20%. So when we talk 'wealth effect' of the stock market for example, it is concentrated in a smallish sliver of society but for macro economic data that is ok, because that is the same sliver where the marginal spending dollar is concentrated.
As the stock market increases this income strata feels wealthier, and along with that the strategic default stimulus you have 2 levers helping many in this group. With the recently announced foreclosure moratorium, these 2 factors could make for a very good Christmas for the 'upper end' retail space. Specifically on the strategic default end, this has been on "ongoing" stimulus for at least 18 months... so to create incremental stimulus of millions of households not paying their mortgages we need a booster. [Jun 2, 2010: (Even More) Anecdotal Benefits of Strategic Default] That booster would either be far more people doing strategic defaults, OR those doing strategic defaults having much longer time frames that they don't pay their mortgage. The foreclosure moratorium will speak to latter point... whereas before many people were on their 19th, 20th, 21st month of not paying a mortgage (saving them $1300, $1500, $1700 a month of which they can go spend) but knowing their time to actually leave the home and have to finally pay for a roof over their head was coming soon; now this has been extended. Perhaps they get another 6 months, 12 months, 18 months - who knows how long. Remember, the benefit of strategic default to a household ends only when the sheriff shows up and actually escorts people outside of the home - until that moment, it is all gravy. Whatever the case, it certainly will be through the holidays (recall the past few years the banks have had foreclosure moratoriums around Christmas), so if nothing else there is 3+ months of "living free"... not just in the high end but certainly at the Kohl's (KSS) and JCPenney (JCP) level. Which is why Christmas sales will be elevated over where they would be otherwise at all levels.
Granted, both these levers (Fed pumping up asset values & families sitting in homes they are not making payments on) are based on 'ponzi scheme' type of situations but this is what it has come down to in America... "it is what it is". The stocks in the space seem to be reacting very well - a sampling: (Click to enlarge)
Disclosure: No positions