The latest economic developments seem to support a rebound to US consumer confidence and hence improvement to retailers' earnings. The immediate drivers that come to mind include;
- Strength of the US$ against EUR and GBP
- Decrease in oil prices will help improve US economic indicators due to the dependence on oil and increase household disposable income
JCP, Wal-Mart and Macy's have already posted earnings that exceeded analysts' estimates, but issued cautious forecasts for the second half of the year amid concerns on slow consumer spending, as published in an article by Reuters.
However, fears on slow consumer spending may not be the main theme for the remainder of 2008 with further expected decline in oil prices and appreciation of the US$. This may however, take a couple of months to materialise but in my view would not dominate the rest of the year. Analysts still estimate an improvement in JCP's EPS for 2009 and 2010, which should ultimately drive the stock price upward, not to mention it is already 14% down on YTD companrison and much more from the 52 weeks high.
On the other hand, unemployment rates and oil reserves reports published earlier, were not very optimistic but the US$ gained against the EUR and GBP due to reports from the UK and EU indicating a slow performance of their respoective economies. We probably need to wait and see how the US economic performance will develop in the coming months, the impact of the US election early 2009 and their effect on the global economy.
$40.11 (08/16/08)
