2. Holiday Sales May not be a Savior for Retail Stocks
- Traders are clearly betting against the sector or hedging their exposure to even deeper losses with trading volume in bearish put options for the consumer discretionary sector spiking recently.
- The bad news reflects how much inflation, growing economic uncertainty and rising interest rates are weighing on holiday spending plans.
2022 has been a brutal year for retail stocks with the S&P 500 Retailing Index has lost more than 30% in 2022. And unfortunately, the last quarter may not be a savior this time around as consumers increasingly tighten their belts heading into the crucial holiday shopping season.
Traders are clearly betting against the sector or hedging their exposure to even deeper losses with trading volume in bearish put options for the consumer discretionary sector spiking recently.
More stores and chains warn that frugal shoppers are going to cut into their bottom lines. While Target Corp. tumbled after announcing that sales trends softened in October, calling out weakness in key gift areas like toys, the National Retail Federation also predicted that holiday sales would grow at a significantly slower pace than last year.
Meanwhile, Amazon.com projected the slowest holiday-quarter growth in its history, sending its market value briefly below $1 trillion.
According to data from S&P Global Market Intelligence, shares out on loan for the members of the S&P 500 Consumer Discretionary Index, an indication of short positioning against the group, are up to 3.7% on average from 2.7% at the beginning of the year.
Although US retail sales actually climbed the most in eight months in October, according to Commerce Department data released last week, sales at department stores still fell, and other key discretionary categories like electronics and sporting goods declined.
Soaring inflation is forcing shoppers to pay more for essentials, and that’s left stores stuck with a glut of excess products, causing retailers to mark down prices at the expense of profits. Goldman Sachs surveyed 1,000 US consumers and found that nearly half plan to spend less this holiday season than they did last year.
Investors will be closely watching quarterly earnings reports this week from Best Buy Co., Nordstrom Inc. and several mall-based apparel retailers for further perspective on holiday sales trends.