While many analysts and banks are preoccupied with predicting the housing bottom (hint: not yet), JP Morgan is trying its hand at predicting the bottom of retail. And we agree when they say we’re not quite there. JPM:
Tax rebate boost is temporary and small…and benefits are going to Wal-Mart (WMT):
…our study shows that although the stimulus is indeed supporting sales through June, the benefits appear marginal and we believe will prove to be temporary…
Wal-Mart scored highest in our survey overall, with moderate lifts in overall sales and traffic trends, but this shouldn’t be too surprising, as it is the only retailer offering free check-cashing services on rebates (of the retailers we surveyed).
Unemployment numbers say retail stocks haven’t bottomed:
Recall that employment growth has a respectable +60.8% correlation with real consumer spending. We analysed the past five recessionary periods, during which unemployment increased 250 bps, on average, and determined that retail bottomed about half-way during the uptick in each occasion. Fast forward to today and unemployment has gapped up 70 bps since February (4.8% to 5.5%), which suggests that we have another 50 bps left before we can call it time to officially buy the group.
People can’t stop eating or smoking:
We’ve taken a category-by-category look to find evidence of trade down – the results of our study were mixed. To this point, we’ve observed trade down in restaurants, autos, and alcohol, but not in tobacco or food. [More good news for Altria (MO) & Wal-Mart (WMT), more bad news for Ford (F) and GM (GM)]
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