Black Friday Bounce Comes Early for Retail Stocks Hitting Record

  • S&P 1500 Retail Index surges 1.6 percent to all-time high
  • Better-than-expected earnings buoy Dollar Tree, Chico’s

Morning Meeting: The Big Winners on Black Friday

Investors aren’t waiting around to celebrate Black Friday.

Three days before the busiest shopping day of the year, companies tracked by the Standard & Poor’s 1500 Retail Index surged 1.7 percent to an all-time high in data going back to 1995. Ross Stores Inc., Children’s Place Inc., Ollie’s Bargain Outlet Holdings Inc. and Shoe Carnival Inc. each added at least 1.5 percent on the way to record levels.

Shares are rallying amid better-than-expected earnings, including reports Tuesday from Chico’s FAS Inc., Dollar Tree Inc. and Barnes & Noble Inc. The National Retail Federation forecasts holiday sales will increase 3.6 percent this year, while Retail Metrics estimates November sales will rise 1.3 percent from October for the third monthly increase.

“The market’s done a better job in recent years in assessing holiday shopping,” said John Canally, chief economic strategist at LPL Financial in Boston, which oversees about $479 billion. Amid the backdrop of a rallying stock market since mid-September, a good back-to-school season, relatively low gasoline prices and higher wages, consumers may be ready to spend, he said.

“From a top-line perspective, the sales season looks pretty good,” Canally said, adding that LPL has a “cautious, wait-and-see” outlook for retail stocks. “It really comes down to company execution. Beyond that, it’s a margin story -- how much does it cost to get the sales out.”

The index of retail stocks has risen 5.5 percent so far in November and is on pace for its best month of returns since July. November historically has been favorable seasonally, delivering average returns of 3.1 percent since 1995, second-best to March.

Even so, hedge funds don’t share the holiday spirit. The SPDR S&P Retail ETF has almost 135 percent of its shares held short, the fifth-most shorted fund of more than 1,900. The exchange-traded fund, which is based on an equal-weighted model, moves closely with even small holdings, and traders can be use it as a surrogate to individual stocks, according to Eric Balchunas, an analyst with Bloomberg Intelligence.

“Some investors may be shorting XRT as a hedge to isolate a long position in one of the ETF’s stocks or another asset,” he wrote earlier.

Retail stocks have outpaced the broader market since the U.S. presidential election, with the ETF up almost 12 percent since Nov. 8, compared to the S&P 500’s 3 percent rally. Children’s Place and Chico’s have surged at least 33 percent in that period.

Dollar General Corp. and Ulta Salon Cosmetics & Fragrance Inc. are among retailers scheduled to release quarterly results next week.

— With assistance by Janet Freund

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