Retail Stocks: Even A Record Cyber Monday Could Be Too Little, Too Late

From Tyler Durden: Earlier today we wrote how legacy retailers were struggling to adopt to Black Friday increasingly moving to a primarily e-commerce platform. 

We noted that not only did several “legacy” website by major retailers like Lululemon, Lowe’s and Wal-Mart suffer various revenue-sapping glitches, but also that Black Friday was likely to set new spending records even as mall traffic – at least for now – appeared roughly the same as last year. Incidentally, total spending for Black Friday is now expected to be $6.22 billion, a gain of 23.6% from last year, according to analyst estimates.

And with Thanksgiving weekend all but behind us, the focus now turns to Cyber Monday, the “official” e-commerce holiday that takes place the Monday after Thanksgiving. Cyber Monday is a horrifying excuse to spend even money you don’t have a “holiday” that’s “celebrated” as everybody returns to work after Thanksgiving break and logs online to begin their holiday shopping.

According to Bloomberg, shoppers are estimated to spend $7.8 billion this Cyber Monday, starting off holiday spending on the right track and setting fresh records. But the question of whether or not the Cyber Monday numbers will have an effect on retail names and the stock market in general still lingers. In the midst of a rising interest rate environment where discretionary spending is all but guaranteed to fall as the economy cools – amid an ongoing trade war – some believe that even record Cyber Monday numbers simply won’t be enough to move the needle.

DA Davidson analyst Tom Forte believes that the lingering consumer spending slowdown in 2019 is throwing a damp rag on any positive signs that will come with a strong holiday spending season: “many of the tariffs will likely be borne by consumers in the second half of 2019 in the form of higher prices on products. Higher interest rates may dampen spending on big-ticket items.”

Overall, US shoppers are estimated to spend $124.1 billion online in November and December this year, up an impressive 14.8% from last year, based on figures from Adobe Analytics. The growth rate is simply astounding, especially so many years after the first adoption of e-commerce. But the stock of legacy retailers like Walmart and Target, for instance, already appear to be priced to perfection and have inadvertently set expectations for themselves extremely high into both this year’s holiday season and into 2019. This makes it less likely that their market values are going to be profoundly affected by whatever the final retail holiday numbers end up printing.

The expectation is for total holiday sales to rise over 5% for the second year in a row – the first time this has happened since the housing crisis. Given that much of this spending is a result of cheap credit and macroeconomic numbers that have peaked, some investors are nervous that this clip can’t and won’t be sustained into the new year.

Of course, the Street still has its obligatory bulls, oblivious of the mess created over the past decade. For instance, Craig Johnson, president of Customer Growth Partners, told Bloomberg: “the strong consumer and retail spending we are seeing now is coming off of this healthy foundation, which is much more sustainable than the credit bubble we saw 12 years ago.”

Maybe someone should inform Craig that our “healthy” foundation is actually the result of cheap capital and inflating asset prices (and thus, the “wealth effect”) and the money supply, and – in the process – also inform him that it wasn’t just a “credit bubble” that caused the last crisis, which has been merely papered over – with a few trillion papers – and has been hardly resolved.

One doesn’t need to be a Wall Street analyst or award-winning economist to realize that US consumers simply can’t keep sustain the rate of spending observed over the last 10 years. Furthermore, the US economy has yet to feel the last couple of aftershocks from recent rate hikes, while the cost of the ungodly amount of outstanding US debt continues to rise not only for consumers, but for corporations and municipalities, the economic machine is only going to grind slower in the years to come.

So enjoy the positive holiday spending headlines as they hit over the next few weeks; it is unlikely that they will be repeated this time next year.

The SPDR S&P Retail ETF (XRT) was trading at $45.53 per share on Monday morning, up $0.65 (+1.45%). Year-to-date, XRT has gained 1.06%, versus a 0.33% rise in the benchmark S&P 500 index during the same period.

XRT currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #4 of 41 ETFs in the Consumer-Focused ETFs category.

This article is brought to you courtesy of ZeroHedge.