Daily Brief - Ready, set, … new record highs (Nov 16, 2021)

The big unveiling is upon us. This is an exciting week if you’re an investor in retail names. It’s also a good check on how the larger macro tailwinds are faring. Consumer spending is more than two thirds of the US economy, and everyone who’s anyone in big box retailing will be reporting in the days ahead. (Additional bonus: retail sales for October come out this week, too)

Home Depot (HD), Lowe’s (LOW), Macy’s (M), Target (TGT), TJX (TJX) and Walmart (WMT) are all expected to report numbers this week.

Quick catch-up for those not in tune with the retail sector.

Retail stocks have handily outperformed the overall index in the past year. The SPDR S&P Retail exchange-traded fund (XRT) is up 60% while the S&P 500 clocked in at 24%. Why the renaissance in big box retail? Haven’t these guys all been driven out of business by Amazon (AMZN)?

In fact, far from it.

The National Retail Federation estimates consumers could spend an estimated $851 billion this holiday season, up a whopping 9.5% from an already record-high $777 billion last year. That’s a growth rate that’s almost twice the 4.4% average increase over the previous past five years, B.C. (before COVID).

Staggeringly high savings, pared-down credit card debt, and a roaring job market have conspired to create a true bonanza for retailers. And the supply-chain driven shortage of goods - which retailers have been more than happy to advertise in their commercials - could move the spending season earlier than usual.

One big question facing investors is how well these companies are grappling with the dual threats of supply chain bottlenecks and spiking inflation this holiday season. Earnings calls are likely to feature a lot of talk about margins, shipping delays, and rising prices.

Buckle up.