One little news item on Tuesday morning might have slipped past you, since very few people get excited about economics news. But it’s worth paying attention, because the economy is the ocean we all swim in. No matter what your political leanings, your economic fortunes are powered by economic winds—and so are certain growth stocks.
After that buildup, the news itself may be a little anticlimactic, but here it is: In October, retail spending in the U.S. was up 0.8% from September and up 4.3% from a year ago. Sales over the internet lead the way with a 12.9% jump, followed by health and personal care products, which rose 8.3%. Home improvement, auto sales and restaurants/bars also beat the average. The news wasn’t as hopeful for department store sales, where sales were down 7.3%.
This is especially good news heading into the five weeks from Black Friday to Christmas that will make or break the year for retailers.
Two important companies, the leading e-commerce companies in the U.S. and China, will be depending on the results. Good news will likely cause a rebound in these two growth stocks. But the converse is also true.
The U.S. company is Amazon.com (AMZN) and the Chinese company is Alibaba (BABA).
Amazon is a colossus with a market cap of more than $353 billion and annual revenue of $128 billion. The company’s stock has recently corrected from a high of 840 in October to as low as 720. Partly this is a result of a rotation out of tech leaders and partly due to a disappointing quarterly earnings report in late October.
But Amazon, under the leadership of Jeff Bezos, has never worried much about meeting analysts’ expectations. Bezos has pushed the company, which began as an online bookstore, into opportunities like cloud services, and original entertainment production and streaming. With revenue of $32.7 billion in the latest quarter and more than $18 billion in cash, there’s plenty of capital for a company with unlimited ambition to work with.
Alibaba is the biggest online marketplace in China. It has a market cap of $228 billion and annual revenue of $19 billion. It also has a focused and ambitious CEO in its founder, Jack Ma. He’s the one who took a quirky pseudo-holiday called Singles Day, when unmarried Chinese nerds bought presents for themselves and turned it into the largest 24-hour shopping period in the world. The nerds thought that the date of singles day (11/11) looked like trees with no branches, which reminded them of themselves. But last Friday’s Singles Day produced a record $17.8 billion in sales, up from the previous year’s record $14.3 billion.
BABA has been in a downtrend since early October, again partly due to investors moving away from emerging markets stocks in general and partly because Singles Day results weren’t quite up to what analysts expected.
The state of the economies of the U.S. and China will have an impact on the fortunes of these two well-known growth stocks. In the long run, it’s likely that both will get back on track and resume their advances. Good economic news won’t cause that, but the economic realities behind the news certainly will.
