Black Friday is currently underway, and shoppers are ‘hard’ at work…
I say that jokingly, as the Black Friday of 2018 is much different than the Black Friday 10 years ago when shoppers had to line up at 4am and fight massive crowds and insanity to get a select number of deals. I mean over 80% of sales are now done online as opposed to in person.
Black Friday has morphed into a whole weekend shopping extravaganza, with some deals even starting before Thanksgiving and stretching into Cyber Monday. Reports have shown that most shoppers will spend on average $1,000, and (no surprise here) many of them will be spending money they don’t even have, on credit. Living with debt is no stranger to the millennial generation. This is the generation that is strapped by student loan debt.
Another grand on Christmas presents is nothing. And so, they shop.
But, you know what the problem is here (and why you should care)?
Consumer debt – mortgage debt, student loans, car loans – is even at higher levels than in 2007. After the recent rally, and the last 10 years, it seems like the market will never stop going up. But, wages are stagnant. Interest rates are rising.
In an economy with high debt plus rising rates, that means people have to spend even more money paying back debt, which equals less spending in the future.
So, what does that mean for Black Friday?
Well, nobody realizes the facts stated above yet, so they’re still spending discretionary income they may or may not have.
What does it mean for the long term?
Overtime, companies in the consumer discretionary sector will most likely take an even bigger hit than they have. We’re seeing that reflected technically in the charts, as money comes out of discretionary and into staples and utilities and health care. AMZN is down 25% from the highs.
Will it get a Black Friday boost?
Even if it does, it’ll just be another opportunity to short it. AMZN lead the market higher, and now it’s leading the market lower. In a fashion like Bitcoin, it couldn’t sustain artificially inflated prices based on too much optimism and euphoria. I see more downside to come.
What about other retailers?
Target, Kohls, Macys? They all have taken a turn for the worst, especially Target and Kohls which took a hit after Q3 earnings, giving back 6 months of gains in a day. Comparing big box retailers to bargain retailers is interesting though, because bargain retailers have held up better. Think Ollies Bargain Outlet, Burlington Coat Factory, and TJ Maxx. While ‘better’ they’re still not strong. Overall, retail is headed lower, and a bunch of Black Friday spending isn’t going to fix this downtrend.
What about the Santa Rally?
Historically, retailers DO trade higher in December. Honestly, I don’t think this’ll be the year that they will. If anything, a lack of higher prices after fantastic Black Friday numbers will probably send retail stocks sharply lower, like the effect that Q3 earnings has had on the market. Good numbers that don’t excite investors enough means an even deeper downtrend.
So, what stocks do we buy then?
Well, I want to focus on consumer staples. Stocks like Walmart, Walgreens, Coke, and Pepsi are all holding up well. Why Walmart over Kohls? Well, they sell tons of other products like groceries — plus they’re cheap. People will still buy toothpaste at Walgreens even if the interest on their mortgage and credit card are eating up extra cash.
And, what about all that online shopping?
Surely we can make some money with it somewhere in the market, and it’s not buying AMZN stock. I think that place is in credit card companies.
Think about it. You can’t pay in cash on Amazon. Do you know how much companies like Visa, Mastercard, and American Express are making due to all this online shopping? Out of the three of them, AXP is the most technically sound, but all three are good long term buys.
But, the smartest thing to do overall is pay off your own credit card, student loan, and mortgage debt, because we’ve seen a major correction in the stock market that has turned into a downtrend.
I’m looking for more downside in 2019. There are places to make money in the market to the upside, like the dollar, for example, but for the most part, I’m looking for weakness and shorting it.
Shorting is a great way to tackle all this volatility after all.