Will Shoppers Bring Holiday Cheer for Markets?

December 15th Weekly Market Update

We think the holiday shopping season may bring some holiday cheer for the markets this year. The U.S. consumer is in good shape, the season got off to a strong start, and the stock market has performed well. Even after last week’s 3.6% loss, led down by the energy sector as oil’s slide continued, the S&P 500 has returned 10.5% year to date. We expect holiday shoppers, bolstered by lower energy prices, to help support potential stock market gains.

The U.S. consumer is in good shape. As we noted in our Outlook 2015:In Transit publication, the consumer is a key factor supporting our 3%-plus U.S. gross domestic product (GDP) forecast for 2015.* Job growth has picked up in recent months, with an average of nearly 300,000 jobs added per month over the three months ending in November 2014. Consumer confidence has been improving and is near post-Great Recession highs. Consumers feel wealthier after enjoying substantial stock market and home price gains in recent years. Debt reduction has brought consumers’ financial obligations to multi-decade lows, relative to their incomes. And finally, the drop in oil prices puts more money in consumers’ pockets.

Back-to-school shopping a good sign. Back-to-school shopping season has been a good leading indicator for holiday shopping season in recent decades. When sales during this important part of the retail calendar are good, sales for the holidays are almost invariably good as well. Sales during this year’s back-to-school shopping season (August and September 2014) rose 4.7% compared with the year ago period, suggesting similar holiday sales gains.

For the full article: Will Shoppers Bring Holiday Cheer for Markets