Investors eye holiday sales for market salve

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By Chuck Mikolajczak

NEW YORK (Reuters) - Investors will get a glimpse of consumer health next week as the holiday shopping season gets under way with Black Friday sales, and a solid start could help equities steady after several tumultuous weeks.

The day after Thanksgiving has been regarded as the traditional start of the holiday buying season, although deals and bargains are being unveiled earlier this year.

Wall Street has been struggling with uncertainty over U.S. congressional midterm elections, the path of interest rate hikes by the Federal Reserve, tariffs, the trade war and the possibility corporate earnings have already peaked. But a strong start to the gift buying season could help ease some concerns.

After an October that saw the S&P 500 (SPX) slump nearly 7 percent, Wall Street has struggled to find its footing, rising 0.7 percent so far in November. That puts the index on pace for its biggest quarterly loss since the third quarter of 2015 and its worst fourth quarter performance in a decade.

About 38 percent of American consumers plan to shop on Black Friday this year, and six in 10 of those shoppers anticipate making at least half of their holiday purchases on that day, a Reuters/Ipsos poll showed on Thursday.

"Of all the other factors, the consumer has been hanging in there - they drove third quarter growth, we are seeing wage growth over 3 percent, financing rates are still reasonable," said Jack Ablin, chief investment officer at Cresset Wealth Advisors in Chicago.

"If we see any kind of disappointment in Black Friday sales, that is going to cause some real concern."

Same store sales for the fourth quarter are expected to come in at a healthy 3 percent, according to Refinitiv data. Still, that number is trending downward from the previous two quarters and is slightly below the year-ago result of 3.1 percent.

Refinitiv same store sales index - https://tmsnrt.rs/2QFVypg

A strong start to holiday sales might not translate to strong earnings, however, reinforcing concerns about the best of corporate profits being in the rear-view mirror as retailers have to grapple with deal-conscious consumers.

"Even a healthy consumer doesn't necessarily mean that retail sales and profitability and performance will be off the charts," said Shawn Kravetz, president of Esplanade Capital in Boston, who spoke at the Reuters Global Investment 2019 Outlook Summit in New York this week.

Muddying the picture was data on Thursday that showed U.S. retail sales rebounded sharply in October, boosted by purchases of motor vehicles and building materials, but the prior two months were revised lower and the trend indicated slower consumer spending, which accounts for more than two-thirds of economic activity in the country.

Big name retailers such as Target (N:TGT), Lowe's Companies (N:LOW) and Gap Inc (N:GPS) are expected to report quarterly results next week and investors will watch for any guidance for the holiday season.

Still, a strong start to the holiday shopping season will only partially alleviate investor concerns, with a G20 meeting at the end of November and the final Fed policy announcement of the year in December likely to cause some market volatility.

The market will need to digest these events for it to have a chance for what is known as a Santa Claus rally. Since 1950, the S&P has rallied in December three-fourths of the time, according to the Stock Traders Almanac. The benchmark index has gained an average of 1.6 percent for December, the best month of the year.

"These are all important things but if the mosaic is either constructive or negative then that is going to provide a wealth of information to either drive the market higher or drive the market lower." said Phil Orlando, chief equity market strategist, at Federated Investors, in New York.