Global growth, foreign-exchange, oil, and small caps are the subject of every client inquiry, says David Kostin. His team's recommendation: Buy "American exceptionalism."
In Kostin's view, U.S. economy and corporate fundamentals are still strong, with economic growth expected by Goldman economists to be 3.2% next year, the fastest expansion since 2005. Europe is expected to grow just 1%.
What his team likes are those stocks of companies which have a high proportion of domestic sales, plus sectors like Consumer Staples (XLP -0.1%) and Discretionary (XLY +0.7%) which stand to benefit from lower oil prices (plunging again today).
As for small caps (IWM +0.9%), Kostin is wary, noting downward earnings revisions have boosted small cap P/E ratios even as prices have declined.
ICSC forecasts holiday retail sales will improve 4% this year to mark the best pace of growth in three years.
Consumer confidence is higher than a year ago, notes the research firm.
The forecast is consistent with the 4.1% prediction for holiday sales from the National Retail Federation.
What to watch: Despite the rosy forecasts from economists, some retail analyst are wary that the consumer trend of deal/comparison shopping won't be dialed back this year even with improved headline economic numbers.
The reads from major retailers on the spending habits of U.S. consumers varies widely with Wal-Mart and Family Dollar warning on the low-end, while pockets of strength have been seen at department stores, some specialty retailers, and out-performers such as Costco, Kroger, and Starbucks.
The high level of spending on automobiles and big-ticket items has squeezed out some discretionary spending, say analysts
If there's one development that nearly all retailers agree on, it's that store traffic is lower as online and mobile take market share and consumers pivot toward a paradigm of efficient shopping trips from mall browsing.
Ikea says it plans to increase the minimum wage for its U.S. retail workers by an average 17% starting next year, a decision that may add to pressure on retailers and fast-food companies that have not raised wages, particularly the largest holdouts, such as McDonald’s (MCD -0.1%) and Wal-Mart (WMT -0.7%).
Business opponents say raising the minimum wage would add as much as hundreds of millions of dollars to costs; Ikea is presenting the move as good for employee well-being, and says it will not raise prices to offset the new costs.
Earlier this year, Gap said it would raise its minimum hourly rate for U.S. employees to $9 in 2014 and $10 in 2015.
Channel checks from Deutsche Bank indicate the promotional cadence in the retail sector has been dialed back a notch from the level seen in Q1.
The investment firm sees less promotional activity from retail beasts Wal-Mart (WMT +0.3%) and Target (TGT +0.2%) - while department store chains such as Kohl's (KSS +0.7%), Nordstrom (JWN +0.6%), and Dillard's (DDS -0.1%) have also shown some improvement.
J.C. Pennney (JCP +1%) is a tougher nut to crack for DB with its radical changes in pricing strategy making the year-over-year comparison less informative.
Retail analysts are looking at underlying factors influencing consumer demand after two of the most resilient companies in the sector missed with their latest earnings report and guided full-year EPS down.
Setting aside the weather, promotions, data breaches, and F/X swings which influenced some of the retail heavyweights - TJX Companies (consumer trade-down) and PetSmart (consumer loyalty) were the U.S. bellwethers which turned in the wrong direction.
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