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Nordstrom, retail stocks gain on signs of fledgling recovery

Call of the day: Nordstrom

Brewing optimism over a less-bad second half is buoying up some of the biggest names in retail, including one battered stock that received a vote of confidence from Piper Jaffray on Tuesday.

Nordstrom shares were up more than 3 percent in afternoon trading, after analyst Neely Tamminga upgraded the company's stock to "overweight" from "neutral." Tamminga cited signs that department store's anniversary sale is off to a more robust start than last year, as a larger percentage of its merchandise is selling out.

Piper Jaffray's upgrade is just the latest indication that a gradually improving economy and a healthier base of consumers could be positioning the industry for a modest second-half recovery. Following three months of positive retail sales data, a survey released by the National Retail Federation last week found the average household with students in kindergarten through high school plans to spend 7 percent more on back-to-school shopping this year.

Meanwhile, a slew of economic data has spoken favorably about consumers' health, including better housing and unemployment numbers. And on Tuesday, the Conference Board's Consumer Confidence reading came in stronger than expected, just hours after the NRF raised its annual sales forecast.

A Nordstrom store in Irvine, California.
Scott Mlyn | CNBC

Investors responded to the list of positive headlines by sending the S&P Retail Index slightly higher on Tuesday, adding to its gains from the previous session. The index is up nearly 5 percent year to date.

"It appears that moderate job gains and minimal income growth is enough to support consumers' spending habits," Stifel analyst Richard Jaffe told investors, citing the recent string of retail sales gains. "We expect this to continue into the important back-to-school selling season, driving third-quarter sales."

That doesn't mean consumers will start freely tossing their money into retailers' registers. Jack Kleinhenz, chief economist at the National Retail Federation, cautioned that consumers are still facing plenty of hurdles, including uncertainty over the presidential election. Shoppers are also shelling out more of their income on health care and housing, which has dented sales at traditional retailers.

Even as the S&P Retail Index gained ground on Tuesday, it's still down more than 6 percent over the last year. Nordstrom shares have slumped nearly 40 percent over that time frame.