Shoppers proving resilient in slump
values are rising, leaving fewer Americans on the brink of foreclosure and helping many feel more financially secure.
Above all, they point out, there is nothing permanent about the “fiscal cliff,” a set of tax hikes and spending cuts that will automatically take effect at the beginning of 2013 if lawmakers are unable to reach a deal to avert it.
When the fiscal issue is addressed and demand bounces back, these contrarians argue, beatendown retail stocks may turn out to be this year’s best after-Christmas bargain.
“There may be some caution ahead of the fiscal cliff” because of uncertainty about tax rates, “but it’s more of a road bump than any fundamental weakness,” said David Kelly, chief global strategist for JP Morgan Funds.
The fiscal cliff isn’t the only reason consumers slowed down in November and December. Americans were buffeted by a series of events, mostly temporary, that made them more likely to stay home.
By Christmas Day, the results were in: Spending in key retail categories increased only 0.7 percent, just a fraction of the 3 percent to 4 percent that many analysts had expected, according to MasterCard Advisors Spendingpulse, a market data provider. It was the worst year since 2008, when the cresting financial crisis had dragged the economy into a deep recession.
Investors didn’t wait for the results from specific stores, which will add detail to the picture when they are released in early January.
They pushed down retailers in the Standard & Poor’s 500 index by 2.6 percent in a weeklong period when the broader index declined only 1.8 percent. Computer and electronics retailers fared the worst, sinking 4.7 percent.
Not so fast, says Karyn Cavanaugh, market strategist with ING Investment Management in New York. The consumer discretionary sector is among her favorites.
“The consumer has shown surprising resilience throughout this tepid recovery and we believe will continue to do so,” Cavanaugh says. The housing turnaround “will further aid consumer and consumer confidence,” she said.
According to Kelly and other market bulls, consumers haven’t meaningfully slowed their spending.
They’re merely holding off as they wait for lawmakers to craft a deal that would prevent some of the scheduled tax increases.
“There’s a difference between confidence and spending attitudes,” Kelly said. “People are generally feeling more confident because home prices are going up.”