Wall Street expects consumers to open their wallets a little wider this holiday shopping season but bargains among red-hot retail stocks could be hard to find, especially as profit growth proves elusive for many big names.
Retailers, including Best Buy
Those gains in recent days have helped push the S&P 500 to a record high.
With U.S. consumers bolstered by wage gains and higher employment, holiday sales will grow 3.6 percent, National Retail Federation predicts. Last year's growth was a modest 3.2 percent, short of the federation's 3.7-percent growth forecast.
But some investors believe a healthy holiday shopping season and higher sales are already built into share prices, with some surging in the past few weeks. In November alone, shares of Best Buy and Macy's have each jumped more than 20 percent, while Kohls' stock is having its best month in more than 16 years with a 25 percent rise.
"We do not necessarily expect these sales gains to translate into outperformance for the consumer sectors, but we suspect they may be good enough to not spook markets," wrote LPL Financial Chief Investment Officer Burt White in a recent research note.
Not helping matters for stores, mall crowds were relatively thin on Friday in an underwhelming start to the holiday shopping season.
A selection of 15 large retailers that are big Black Friday players, including traditional brick-and-mortar chains and online heavyweight Amazon
Expectations that tax cuts under President-elect Donald Trump could leave consumers with more disposable income have also fuelled gains in the retail sector, with the SPDR S&P Retail exchange traded fund
Since the election, that fund has been a big outperformer, outpacing most other industry-tracking funds with a 12.2-percent gain. The wider S&P 500 is up just over 3 percent in the same period.
That's made it more difficult to find bargains, said Telsey Advisory Group analyst Joseph Feldman. He recommends Home Depot
Still, recent forecasts from retailers are encouraging: After reporting better-than expected quarterly profit on Nov 16, Target
Macy's has seen year-over-year profit declines for six quarters in a row. Kohls' profit rose last quarter but had fallen for the previous four.
The 15 Black Friday retailers tracked by Reuters are expected on average to grow their revenue by 3.3 percent in the fourth quarter, which would be better than the 2.5 percent increase the year before, according to Thomson Reuters data. But without online shopping goliath Amazon, the group's revenue is seen edging up just 1.7 percent, slightly better than its 1.1 percent increase last year.
Despite Target's upbeat comments on holiday spending, its fourth-quarter revenue is seen falling 3 percent, with its net income shrinking 0.8 percent. Wal-Mart Stores
Best Buy, which is trading near a six-year high, has said it expects same-stores sales to rise or fall by 1 percent in the current quarter.