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Market Commentary – November 28, 2011

Black Friday: A Sign of Good Things to Come?

When that last turkey sandwich disappeared on Thanksgiving night, it marked the start of the next chapter in American holiday tradition – Black Friday. While many watched a lackluster football game or heard that the NBA lockout was possibly over, the shopping diehards focused instead on more important issues at hand – insanely cheap televisions at WalMart, half-priced video game systems at Best Buy, and specially priced music systems at Target. When all was said and done, despite high unemployment levels and menacing black clouds from Europe, Black Friday sales results were much better than expected. Why is Black Friday and the ensuing weekend so important?

The day after Thanksgiving, or Black Friday, is the traditional kick-off to the holiday shopping season. It gets its name from the fact that on that day, retailers begin to turn a profit (i.e. get into black) for the year. In general, a solid Black Friday suggests a solid holiday shopping season, which ideally turns into strong retail profits. This past Black Friday was outstanding. According to the National Retail Federation, spending per shopper surged 9.1 percent over last year – the biggest increase since 2006 – and 6.6 percent more shoppers visited stores this year than last year. Numbers from ShopperTrak, another consumer research service, showed equally strong results – sales rose 6.6 percent over last year’s levels to a record $11.4 billion.

While solid Black Friday results are important to retailers, they are also a good indicator of the economy. Generally, consumer spending represents about 70% of Gross Domestic Product (GDP). A spending consumer is good for the economy. Also, a spending consumer suggests a more confident consumer. Case in point, the Rasmussen Consumer Index, which measures the economic confidence of consumers on a daily basis, held relatively steady on Monday at 70.2. More importantly, given that this index is up a point from a week ago, and is up five points from a month ago, consumer confidence is showing signs of improvement.

Despite this good news about the consumer, keep in mind that Black Friday only represents one day of the 30 day holiday season. Also, troubling to retail watchers was the fact that holiday foot traffic seemed to slow as the weekend progressed. Lastly, readings on consumer income have recently been rising faster than consumer spending. This suggests that despite the Black Friday sales, concerns about jobs, Europe and a tepid economy, consumers may again be saving more. While increased savings solidify a consumer’s personal balance sheet, it is a sign of potential weaker spending down the road.

From an investment perspective, in spite of these cautions and a still uncertain economy, Black Friday represented a dose of good news for the financial markets. While we continue to caution that the all-clear signal should not be raised, low equity valuations (S&P 500 P/E ratio is at an attractive 11) suggest a modest increase in equity exposure may make sense at this time. With that said, within equities we continue to favor defensive sectors (such as Consumer Staples, Health Care and Utilities) and dividend-paying companies. Outside of equities, corporate bonds also look attractive.

This information is compiled by Cetera Financial Group from source material obtained or provided by US federal and state departmental websites, equity index sponsors Standard & Poor’s, Dow Jones, and NASDAQ, credit ratings agencies Standard & Poor’s, Moody’s Ratings, & Fitch Ratings, domestic and foreign corporate issued newswires and press statements, and from referenced compilations and index readings by Bloomberg Professional. The information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The information has been selected to objectively convey the key drivers and catalysts standing behind current market direction and sentiment.

No independent analysis has been performed and the material should not be construed as investment advice. Investment decisions should not be based on this material since the information contained here is a singular news update, and prudent investment decisions require the analysis of a much broader collection of facts and context. All economic and performance information is historical and not indicative of future results. Investors cannot invest directly in indices. This is not an offer, recommendation or solicitation of an offer to buy or sell any security and investment in any security covered in this material may not be advisable or suitable. Please consult your financial professional for more information.

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