Consumers Shopping 'Til They, And Stocks, Drop?
By: John Melloy
Consumer stocks zoomed into the top spot among best-performing sectors in the S&P 500 for 2010, after a government report today showed personal spending rose twice as fast as incomes in March. But after an 18 percent run this year, some investors questioned if the shares — just like consumers — are getting a little ahead of themselves.
“The easy money has been made and after Easter, there’s really nothing to move the stocks until back to school,” said Patricia Edwards, founder of money management firm Storehouse Partners in Bellevue, WA. “Consumers spending savings whey they don’t have income is a little scary again.”
Retail and related shares will be the market’s focus this week following the figures today, April sales results set for release Thursday and the big March payrolls report Friday. Earnings reports for the major retailers will begin this month.
The Consumer Discretionary SPDR popped more than 1 percent today and has been on a tear since the start of the year, led by gains in Nike, Home Depot, Macy’s and Ford, as credit card delinquencies leveled off for banks and the job picture began to improve. The Industrials SPDR ETF is fighting for the top spot, also up a little more than 18% this year.
Accompanying these gains has been some unbridled enthusiasm from analysts, raising the question whether the improvement in the largest portion of the economy is already priced in. Analysts have raised their earnings estimates on 52 percent of consumer discretionary companies in the S&P 1500 Index, far and away the most of any industry, according to analysis by Bespoke Investment Group.
Goldman Sachs Portfolio Strategist David Kostin called consumer discretionary and industrial stocks the most “unattractive” out there, in a report to clients today based on his widely-followed Growth-at-a Reasonable-Price, or GARP, methodology.
Investors with past success trading retailers say it’s time now to get selective. Karen Finerman, President of Metropolitan Capital Advisers and a Fast Money trader, is long TJX companies and Best Buy, but a bit cautious on Apple here. Storehouse’s Edwards likes JCrew, McDonald’s and Coach.
Edwards is cautious however on Abercrombie & Fitch, which is up 28 percent this year.
“I was not impressed with the offerings that I saw at Abercrombie this weekend,” said Edwards. “A huge amount of the store was marked down, which is an issue for a retailer that is trying to project a premium brand.”
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