Catbag

Some of you might recall that when this year began the retail sector was set for burning in hell. 

But something changed…

Well, it didn't really. The cat just found its way out of the bag.

The data from the Retail Federation (which admittedly sound a little Star Trek-ish) reads:

"Retail sales in 2018 are now forecast to climb higher than previously expected thanks to U.S. tax reform and other upbeat economic indicators, according to an industry trade organization.

“Spending at retailers — excluding on automobiles, at gasoline stations and at restaurants — is predicted to climb between 4.2 and 4.8 percent, the National Retail Federation said Monday morning, giving a rare updated outlook for the remainder of the year.

“That's compared with a prior range of between 3.8 and 4.4 percent.

“'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.'"

The Angst Remains

But don’t worry, plenty still remains in the angst category that you will be told to fret over - and by doing so you’ll miss the bigger picture.

There will be unending chatter about the uncertainty around a trade war with China that could impact retail spending.

And when that is over - and it will be - there will be more.

Retail sales for the first half of 2018 were up 4.8 percent from a year earlier, the NRF said last week. 

In fact, in the most recent three-months moving average sales have climbed 4.4 percent year over year.

Note that many big retailers, including Home Depot, Walmart and Macy's recently came in ahead of expectations on earnings, revenue and same-store sales growth.

Look for more beats and feared sell-offs as advantages.

All factors considered, thus far 2018 is turning out to be a lot like we noted when the year began. 

Unfortunately, if don't have a boatload of Tech, with the NYSE Composite finishing last week with a YTD gain of just 0.27%, many investors feel flat.

When we started the year we noted the odds were weighted to times we have seen in the past after two big up years: "...we may want to consider the 1994 and 2014-15 years. 

In those time periods we saw solid recoveries in vast portions of the economic data across the board - and both periods saw nearly flat returns for most of the year.

Here’s what is important.

They both also served as launching pads for significant breakouts to the upside for the patient investor, bringing new foundations of long-term economic and investor support and not the long-feared "tops" covered so often at the time."

Remember also that in 1994 we had six US Fed interest rate increases, excellent earnings growth where S&P 500 earnings also grew over 20% (like now), and the S&P 500 returned 1% on the year.

Today we merely need to embrace what's next and stay patient.

Mike_williams
Author
Mike Williams
Founder and Managing Partner of Genesis Asset Management, New York