Thanksgiving is little more than a week away, which means the biggest shopping day of the season is almost here. Black Friday and the burgeoning Cyber Monday that follows the holiday weekend keep getting bigger every year, which is why Black Friday stocks have become a thing.
By Black Friday stocks, I mean stocks of retailers that traditionally make a killing on Black Friday and Cyber Monday. Last year, I picked three stocks to buy before Black Friday, and all three of them did well in the weeks that followed. I’ll have my new Black Friday stock picks later in the week. But retailers already got a dose of good news in October.
U.S. retail sales improved 0.8% in October, ahead of the 0.6% growth economists had expected. Also, September sales were revised upward from 0.6% to 1%, combining with October to mark the largest two-month improvement for retail sales since early 2014. Auto sales led the charge both months, posting month-over-month gains of 1.9% in September and 1.1% in October. Building materials also performed well last month as many homeowners unfortunate enough to be in Hurricane Matthew’s path needed to make repairs.
Here are other retail sectors that performed well last month:
- Sporting goods stores: +1.3%
- Gas stations: +2.2%
- Online sales: +1.5%
- Health and personal care stores: +0.8%
And here are a few that underperformed:
- Furniture stores: -0.9%
- Restaurants and bars: -0.7%
- General merchandise stores: +0.4%
- Clothing stores: +0.6%
What can we decipher from these numbers?
The gas station numbers are no surprise—gas prices were up by an average of three cents, reaching their highest level since June.
The surge in online sales bodes well for Cyber Monday, which has seen its growth accelerate over the last few years while Black Friday sales have dropped. And the jump in auto sales is a commentary on both improving consumer sentiment and still-low gas prices.
So, with Black Friday approaching, I’d keep an eye on auto stocks and online behemoths such as Amazon.com (AMZN) and eBay (EBAY). Sandwiched in between the back-to-school rush and the holiday shopping season, September and October are historically slower months for retail sales. Thus, the big jumps in auto and online sales could portend even bigger things in November and December for those two sectors.
Bigger picture, U.S. retail sales have now grown six of the last seven months. Because consumer spending accounts for about 70% of economic activity in the U.S., improving retail sales after a slow start to the year increase the likelihood of an interest rate hike, perhaps as early as next month.
Rate hikes are, of course, considered bearish for the stock market, at least in the short term, as was the case after last December’s rate hike. Until then, however, an uptick in consumer spending is good for retailers, and means there could be plenty of strong Black Friday stocks from which to pick. Stay tuned.
