Weekly Wisdom – November 30, 2022

By Hightower Great Lakes on November 30, 2022

Reflecting on the Pandemic and Macro Implications that Got us Here

If paying attention to the markets on a weekly basis is a part of your life, we are sure you can attest that it has been one long year. We find it important to reflect on all that has happened over the course of 12 months.

For instance, a year ago today, on November 30th, 2021, the World Health Organization (WHO) classified a new variant of concern and named it Omicron.¹ The subsequent disruption had an impact on supply chains, consumer demand, and most importantly, health considerations.

This led to more double- and triple-ordering of goods so that companies could try to ensure that they would have product in time for the remaining holiday season. It also kept some consumers on the sidelines as they prioritized health over in-person holiday shopping.

Now, fast-forwarding a year, retailers have been trying to manage their extra inventory, leaving them with little choice except to discount and clear what they can.

This has given consumers the advantage, prompting a “buyers’ market” for many goods that have been discounted. While inflationary forces have impacted many consumer categories, their impact on traditional holiday goods has been greatly muted compared to peak-inflation levels.

Chart 1: Downward CPI Trends in Popular Holiday Shopping Categories²

Spending Momentum Continues Over Holiday Weekend

Holiday cheer kept consumers going, as Thanksgiving, Black Friday and Cyber Monday all hit record numbers, coming in at $5.2bn, $9.12bn and $11.3bn, respectively.

Cyber Monday sales rose 5.8% y/y, while Black Friday sales were up 2.3% from 2021, which came somewhat as a surprise, since retailers began their deals as early as October this year. When retailers kicked off holiday promotions early in 2021, in an effort to help alleviate challenges from shipping bottlenecks, Cyber Monday sales fell 1.4%.³

Chart 2: Yearly Holiday Spending Trends⁴

Consumer demand appeared to be (once again) resilient, as both in-person shopping and online saw a bump over 2021 numbers. According to Adobe Analytics, which tracks 85% of the top 100 internet retailers, retail traffic was up 7% from 2021 but in store sales only rose 0.1%.⁵

Regarding online shopping, Shopify (SHOP) noted that worldwide Black Friday sales increased 19% y/y, with the average cart being larger than last year as well.

According to Adobe Analytics, electronics, toys, and gym equipment have all been displaying strong sales trends over the holiday weekend.⁶

This confirms some of what we heard from companies toward the latter part of the third quarter earnings season. Dicks Sporting Goods, (DKS) was a notable winner; they were able grow market share and reported no “trading down” from customers.

Trading down refers to customers sacrificing quality or preferred brands in favor of cheaper alternatives – a common theme that’s been noted by companies amid the inflationary environment. Similarly, Best Buy (BBY) also noted that there is not a significant trade down trend taking place.

Broad retailers such as Walmart (WMT), Target (TGT), and Kohls (KSS) all outpaced Amazon (AMZN) this Black Friday, as searches for discounts surged 386% y/y on WMT’s website, according to Captify.⁷
The National Retail Federation (NRF) conducts surveys of holiday shoppers to gauge and track trends in the holiday season.⁸

Takeaways from the survey included:

1) The NRF forecasts 2022 sales to increase +6-8% y/y

2) A meaningful driver of this increase will be from online and other non-store sales, which the NRF sees increasing +10-12% y/y

3) The NRF estimates 8 million more people shopped during Black Friday weekend vs. last year

Sales Are Strong, but Is the Consumer?

The rise of “Buy Now Pay Later” (BNPL) is fueled by consumers looking to postpone the cost of purchases. According to Salesforce (CRM), shoppers are now using BNPL programs to finance even lower-priced gifts.

The average order value of BNPL purchases over the Thanksgiving weekend fell by 9% y/y. And through an Adobe Analytics report, we learned that BNPL purchases jumped 68% during the week of Black Friday when compared to the week prior.⁹

Although the consumer came out strong during the holiday shopping season, we are paying close attention to consumer health, considering the high-cost inflationary environment.

We’re seeing signs that U.S. credit card borrowing has already spiked, personal savings rates are just 3.1% and consumer credit quality may be starting to deteriorate.

The consumer has a cushion from elevated savings throughout the pandemic, plus low unemployment and higher wages, but higher costs have had an impact.

Chart 3: Rising Consumer Credit Outstanding, Lower Personal Savings Rate10

In early November, Bank of America (BAC) reported that consumer spending continued to grow through October, though at a slower pace than prior months. This is a trend we will analyze closely as we wait for the next retail sales report on December 15th.

It’s important that inflation continues to come down, as we root for the labor market and credit quality to stay healthy and support the consumer.

We hope everyone was able to relax and enjoy time with family and friends during the Thanksgiving holiday, as we enter a busy end of the year.

Click here to read last week’s Weekly Wisdom (11/16).

Disclosures

Investment Solutions is a group comprised of investment professionals registered with Hightower Advisors, LLC, an SEC registered investment adviser. Some investment professionals may also be registered with Hightower Securities, LLC, member FINRA and SIPC. Advisory services are offered through Hightower Advisors, LLC. Securities are offered through Hightower Securities, LLC.

This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is neither indicative nor a guarantee of future results. The investment opportunities referenced herein may not be suitable for all investors.

All data or other information referenced herein is from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other data or information contained in this presentation is provided as general market commentary and does not constitute investment advice. Investment Solutions and Hightower Advisors, LLC or any of its affiliates make no representations or warranties express or implied as to the accuracy or completeness of the information or for statements or errors or omissions, or results obtained from the use of this information. Investment Solutions and Hightower Advisors, LLC assume no liability for any action made or taken in reliance on or relating in any way to this information. The information is provided as of the date referenced in the document. Such data and other information are subject to change without notice.

This document was created for informational purposes only; the opinions expressed herein are solely those of the author(s) and do not represent those of Hightower Advisors, LLC, or any of its affiliates.

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¹ Source: FactSet (chart). Data as of November 16, 2022

² Source: FactSet (chart). Data as of November 16, 2022

³ Source: Brookings Institute

⁴ Source: The New York Times

⁵ Source: FactSet (chart). Data as of November 16, 2022