S&P 500   5,061.82
DOW   37,735.11
QQQ   431.06
Novo Nordisk Arms Wegovy to Be a Triple Threat
5 Small-Cap Energy Stocks Surged in Price and Volume on Friday
Vital Farms Rides the Pasture-Raised Egg Trend to the Bank
3 Energy Plays for Cash Flow: Buy 1 or Buy Them All
M&T Bank, Goldman Sachs rise; Salesforce, Tesla fall, Monday, 4/15/2024
Global smartphone shipments climb nearly 8% in 1st quarter as Samsung retakes the lead
When Will the Next Bull Market Be?
S&P 500   5,061.82
DOW   37,735.11
QQQ   431.06
Novo Nordisk Arms Wegovy to Be a Triple Threat
5 Small-Cap Energy Stocks Surged in Price and Volume on Friday
Vital Farms Rides the Pasture-Raised Egg Trend to the Bank
3 Energy Plays for Cash Flow: Buy 1 or Buy Them All
M&T Bank, Goldman Sachs rise; Salesforce, Tesla fall, Monday, 4/15/2024
Global smartphone shipments climb nearly 8% in 1st quarter as Samsung retakes the lead
When Will the Next Bull Market Be?
S&P 500   5,061.82
DOW   37,735.11
QQQ   431.06
Novo Nordisk Arms Wegovy to Be a Triple Threat
5 Small-Cap Energy Stocks Surged in Price and Volume on Friday
Vital Farms Rides the Pasture-Raised Egg Trend to the Bank
3 Energy Plays for Cash Flow: Buy 1 or Buy Them All
M&T Bank, Goldman Sachs rise; Salesforce, Tesla fall, Monday, 4/15/2024
Global smartphone shipments climb nearly 8% in 1st quarter as Samsung retakes the lead
When Will the Next Bull Market Be?
S&P 500   5,061.82
DOW   37,735.11
QQQ   431.06
Novo Nordisk Arms Wegovy to Be a Triple Threat
5 Small-Cap Energy Stocks Surged in Price and Volume on Friday
Vital Farms Rides the Pasture-Raised Egg Trend to the Bank
3 Energy Plays for Cash Flow: Buy 1 or Buy Them All
M&T Bank, Goldman Sachs rise; Salesforce, Tesla fall, Monday, 4/15/2024
Global smartphone shipments climb nearly 8% in 1st quarter as Samsung retakes the lead
When Will the Next Bull Market Be?

Retailers see earnings growth ahead but investors are lukewarm

Lululemon logo on a wall

Key Points

  • The retail industry lags the broader market, although Walmart and Costco are among the biggest consumer staples gainers in January.
  • Consumer spending has been strong, with retailers Lululemon, Abercrombie & Fitch, Urban Outfitters and American Eagle Outfitters among those forecasting robust EPS gains.
  • Analysts see retail sales growing in 2024 but also expect consumers to cut back on spending somewhat. 
  • 5 stocks we like better than Abercrombie & Fitch

Retailers and retail-related stocks are among the top performers in the Consumer Discretionary Select Sector SPDR Fund NYSEARCA: XLY. However, that's faint praise: Retail stocks have lagged in the broader market and their sector. 

Walmart Inc. NYSE: WMT and Costco Wholesale Corp. NASDAQ: COST are among the top 10 large-cap consumer staples gainers in January, but the sector has been posting only lackluster returns since the start of 2024. 

The S&P 500 is up 2.61% this month, while the consumer staples sector has returned 0.35%. 

Consumers have freely opened their wallets, driving economic growth and defying economists' recession predictions. 

Clothing retailers see big gains ahead

Apparel retailers like Lululemon Athletica Inc. NASDAQ: LULUAbercrombie & Fitch Co. NYSE: ANFUrban Outfitters Inc. NASDAQ: URBN and American Eagle Outfitters Inc. NYSE: AEO guiding toward strong earnings performance, continuing their momentum from 2023. 


Among that group, mid-cap Abercrombie & Fitch is the only one in rally mode, with the others showing mild selloffs, with support at or above their 50-day moving averages.

The SPDR S&P Retail ETF NYSEARCA: XRT is down 3.77% in January after returning to 21.54% in 2023. This ETF tracks an index of large, mid and small-cap stocks from nine sub-industries within retail. 

This index uses a modified equal-weighted approach, which means it's not just the behemoths that drive index performance, as is the case with the market-cap-weighted S&P 500. 

For example, within the XRT retail ETF, Abercrombie's January return of 16.14% means it's raced its way to the pole position. 

Consumer confidence at two-year high

But the overall performance of retailers indicates a disconnect between consumer confidence, which reached a two-year high in January, and retail stocks. 

In theory, retailers should be among the market's leaders, as earnings expectations are high and being revised higher. 

Oppenheimer's Brian Nagel said he doesn't believe consumers are feeling the effect of interest-rate increases when it comes to shopping, although that's certainly been true for the housing market.

In a January 19 research note, Bank of America analysts said, "Ignore retail sales; the economy is cooling."

B of A analysts wrote, "We look for a reversal of December's strength in January. Consumer spending may be healthy, but it's not surging or slumping, and we don't think the report says much about the Fed's ability to cut rates beginning in March as we expect." 

Analysts see retail sales growing in 2024

With both large and mid-sized retailers forecasting earnings growth this year and analysts agreeing, there's no suggestion that retail sales will fall off a cliff.

According to market researcher Insider Intelligence, in 2024, retail e-commerce sales will grow 10.1% over 2023, while non-e-commerce sales will grow 2%. 

The financial services industry may be offering a hint of what's to come: When it reported fourth-quarter results, Discover Financial Services NYSE: DFS said it was increasing its credit-card delinquency reserve and said the rate of payments delinquent by 30 days or more rose in the fourth quarter. The rate of personal loan chargeoffs also increased. 

That could indicate that higher rates are finally catching up with consumers, causing investors to be more cautious. 

Factors behind retail stocks' selloff

A look at the retail ETF chart shows the volume of selling increased in the first three weeks of January before buyers took control the week ended January 26. 

That could signal a few things.

First, investors may be taking some profits in retail industry stocks after a run-up that began in October. 

In addition, investors may be pulling back the reins on retail stocks as the market is less certain about Federal Reserve interest rate cuts shortly. In a twist, developments such as strong consumer spending dampen investors’ enthusiasm about near-term cuts.

Finally, as the data from Discover Financial show, there's a growing sentiment that consumers may be starting to cut back and that even a pause in rate hikes will take some time to work through the system.

Should you invest $1,000 in Abercrombie & Fitch right now?

Before you consider Abercrombie & Fitch, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Abercrombie & Fitch wasn't on the list.

While Abercrombie & Fitch currently has a "Hold" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

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Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Abercrombie & Fitch (ANF)
2.8888 of 5 stars
$112.84+0.9%N/A18.14Hold$122.71
American Eagle Outfitters (AEO)
3.1342 of 5 stars
$22.65-1.8%2.21%26.34Hold$21.27
Consumer Discretionary Select Sector SPDR Fund (XLY)N/A$174.16-1.7%0.78%N/AHold$0.07
Costco Wholesale (COST)
4.5562 of 5 stars
$718.28-1.8%0.57%46.98Moderate Buy$691.28
Discover Financial Services (DFS)
4.9625 of 5 stars
$121.31+0.3%2.31%10.78Hold$125.22
Intel (INTC)
4.7674 of 5 stars
$36.31+1.7%1.38%93.10Hold$42.69
Lululemon Athletica (LULU)
4.7425 of 5 stars
$334.76-0.4%N/A27.42Moderate Buy$485.39
SPDR S&P Retail ETF (XRT)N/A$70.92-1.3%1.83%12.75N/AN/A
Urban Outfitters (URBN)
3.6241 of 5 stars
$38.21-1.4%N/A12.57Hold$39.58
Walmart (WMT)
4.3554 of 5 stars
$59.93-0.3%1.38%31.32Moderate Buy$61.60
Compare These Stocks  Add These Stocks to My Watchlist 

Kate Stalter

About Kate Stalter

  • stalterkate@gmail.com

Contributing Author

Retirement, Asset Allocation, and Tax Strategies

Experience

Kate Stalter has been a contributing writer for MarketBeat since 2021.

Additional Experience

Series 65-licensed investment advisor, financial advisor, Blue Marlin Advisors; investment columnist for Forbes, U.S. News & World Report

Areas of Expertise

Asset allocation, technical and fundamental analysis, retirement strategies, income generation, risk management, sector and industry analysis

Education

Bachelor of Arts, Saint Mary’s College, Notre Dame, Indiana; Master of Business Adminstration, Kellogg School of Management at Northwestern University

Past Experience

Founder, financial advisor for Better Money Decisions; editor, stock trading instructor for Investor’s Business Daily; columnist, podcast host, video host for MoneyShow.com; contributor for Morningstar magazine


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