3 Reasons Retail Is Ready to Rally
Retail is one of the most flimsy, fickle sectors around, and low-risk investors tend to steer clear. But with another positive report this week, it seems that retail might be back on the rise. Let's take a closer look to see whether retail might be ready to roar.
Retail sales clocked in at 0.6% growth for May, according to a Thursday report from the Commerce Department. May's numbers beat analyst expectations and mark another month of increases for this metric. After three days of declines, the Dow Jones Industrial Index and S&P 500 clawed back up 1.48% and 1.21%, respectively.
Although sales have headed steadily higher since the Great Recession, growth patterns have remained more erratic, with adjusted growth tapering off after 2011 highs.
But Mr. Market loves to hate this sector, and there are more than a few reasons to believe in retail's rally.
As the newest report indicates, retail is making up ground without gas price spikes. Low energy prices have stunted sales across the board, but retail's most recent increase comes in spite of a 1.6% drop in gasoline station sales in the last year.
Rev up retail
Auto sales are up 8.5% since May 2012 and could continue to grow as consumers head to the dealerships after holding off during tougher times. General Motors reported seasonally adjusted 3.1% U.S. sales growth in May, its biggest monthly gain since September 2008. According to VP of U.S. Sales Kurt McNeil, "The gradual recovery in the economy is becoming more broad-based." For Ford , sales clocked in a whopping 14% higher than May 2012. The Blue Oval's new fuel-efficient pickups pushed F-Series sales up 31%, its highest numbers since March 2007.
If you build it, they will come ... and buy.
Housing reports are skyrocketing, and a 10.1% annual increase in building materials and garden equipment store sales points to a secret secondary effect of a housing market recovery. Home Depot's first-quarter sales headed up a seasonally adjusted 7.4%, while its net income increased a seasonally adjusted 18.5%. Analysts have alluded to a supply-side "housing squeeze," another sign that the housing market needs what building supplies retailers are selling.
Is retail back?
Retail bulls are used to being contrarian, and their successes have often gone underrated in the investing world. With more positive retail reports rolling in, it might just be time to ride the newest retail rally.
Can Ford keep fueling retail?
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The article 3 Reasons Retail Is Ready to Rally originally appeared on Fool.com.Fool contributor Justin Loiseau has no position in any stocks mentioned, but did contribute to candy store sales in May. You can follow him on Twitter, @TMFJLo, and on Motley Fool CAPS, @TMFJLo. The Motley Fool recommends Ford, General Motors, and Home Depot and owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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