By Joyce Yu
U.S. tax reform and other upbeat economic indicators helped to boost US retail sales this year. National Retail Federation (NRF) said on Monday it expected spending at retailers — excluding automobiles, gasoline stations and restaurants – to grow at least 4.5%. With major retailers including Home Depot, Walmart and Macy’s reporting quarterly earnings this week, investors will pay close attention to their outlooks for the rest of the year.
Accounting for more than two-thirds of the American economy, consumer spending grew 4% in the second quarter, with May and June showing particularly strength. Retail sales for the first half of 2018 were up 4.8 percent from a year earlier, NRF said. On Wednesday, the US government will report retail sales for July.
“Higher wages, gains in disposable income, a strong job market and record-high household net worth have all set the stage for very robust growth in the nation’s consumer-driven economy,” NRF President and CEO Matthew Shay said in a statement. “We knew this would be a good year, but it’s turning out to be even better than expected.”
Earnings reports from luxury retailers like Michael Kors and Louis Vuitton owner LVMH have been beating market expectations. Macy’s will report its results before the opening bell Wednesday. Its shares have grown 60% this year, the second-best-performing retailer in the S&P 500 after Amazon, thanks its efforts in promoting e-commerce. Walmart, on the other hand, has lost nearly 10% in market value this year after its digital momentum faded. Walmart will release corporate results on Thursday. Also announcing earnings this week are JCPenney, department store chain Nordstrom and Coach.
“The fundamental strength of the consumer and retail sales doesn’t appear to be fully baked in to the stocks,” said Lindsey Bell, investment strategist with CFRA, in a report. “Retail sales from clothing stores, department stores and online have been strong in the past three months and will be key in the success of retailers this quarter.”
Still, there is uncertainty in the market with an ongoing trade war with China, rising oil prices, and higher-than-expected inflation. In its recent report, Goldman predicts the markets will not move much into year-end. “The best earnings season since 2010 is now mostly behind us. Investors have quickly shifted their attention from past results to future prospects at both the micro and macro levels,” Goldman’s chief U.S. equity strategist David Kostin wrote in a note issued on Friday.
“Given our forecast for decelerating US economic growth, investors should focus on stocks providing the fastest top-line growth,” he said. “Five stocks [in the basket] have more than 25% expected sales growth (Autodesk, Align Technology, Cabot Oil & Gas, Concho Resources, and Facebook).”