VIDEO: All Eyes on Black Friday

Welcome to my video for today. The article below is a condensed transcript of my presentation.

The national ritual of frantic sales on the day after Thanksgiving will soon commence. It’s called “Black Friday,” and projections are optimistic for e-commerce as well as bricks-and-mortar retailers.

Adobe Analytics predicts that online Black Friday sales (combined Black Friday and Thanksgiving spending) this week will grow about 20% year-over-year and reach $17 billion.

Online sales, especially on Cyber Monday, are projected to outpace in-store sales. Adobe expects U.S. holiday sales online to hit $207 billion from November 1 to December 31, for a new record. This marks a 10% increase from 2020, a strong growth rate considering the stellar performance e-commerce enjoyed last year when the pandemic made buying online a necessity (see chart).

These numbers are crucial to the American economy and stock market. About three-fourths of U.S. gross domestic product is made up of consumer spending, and in turn about three-fourths of consumer spending occurs during the holidays. And of course, the traditional start to the seasonal spending madness is Black Friday.

Due to the pandemic, however, we’re unlikely to see a repeat of the unruly, jostling crowds at physical stores that we’ve seen in previous years.

That said, retailing enters Thanksgiving week with accelerating momentum. The U.S. Census Bureau reported last Tuesday that retail sales rose 1.7% on a monthly basis in October, marking the largest gain since March. By comparison, September saw only an 0.8% increase.

October’s retail sales number reflected the third consecutive monthly gain and surpassed consensus expectations of a 1.4% gain. On a year-over-year basis, retail sales rose 16.3% versus October 2020. Most impressively, sales were 21.4% higher than they were in October 2019, before the outbreak of the pandemic.

At the same time that retail sales are surging, unemployment is falling, COVID infections on average are waning, economic growth is on track, and corporate earnings are robust.

Outbreaks of the virus are plaguing certain hot spots in the country, especially where vaccination rates are low and “pandemic skeptics” hold political sway. But nationally, case levels this month remain far below those seen in September and October.

In addition to vibrant retail sales, the enactment of President Biden’s $1.2 trillion infrastructure bill is another tailwind for the financial markets.

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For the third quarter of 2021, the S&P 500 has reported a blended year-over-year earnings growth rate of 39%, the third-highest year-over-year growth since the second quarter of 2010. All 11 S&P 500 sectors are reporting year-over-year earnings growth. The top performing sector is materials, coming in with a year-over-year earnings growth rate of 90%.

More S&P 500 companies are beating earnings estimates for the third quarter than average, and beating those estimates by a wider margin than average. So far, 82% of S&P 500 companies are beating estimates, the fourth-highest percentage since research firm FactSet started tracking this metric in 2008.

The Dow Jones Industrial Average last week dipped on concerns about inflation and signs that Asian growth might be slowing, but stocks last week generally stayed aloft. The S&P 500 and tech-heavy NASDAQ closed out the week at new highs. The benchmark 10-year Treasury yield remained flat (see table).

Investors are increasingly worried that hot inflation will stick around, hence the recent uptick in the CBOE Volatility Index (VIX). But historically, stock returns tend to hold up well in inflationary environments, and can outperform when inflation comes down.

It’s becoming unfashionable among economists, but I still belong to the “transitory” school of inflation watchers. Rising inflation right now is largely the result of supply chain bottlenecks.

Inflation has disproportionately derived from demand for durable goods, e.g. kitchen appliances, home exercise equipment, and computer gear. The clamor for durable goods has placed enormous burdens on transportation systems, especially seaports, causing spikes in prices for products that are in short supply. The culprit for inflation is not, as inflation hawks claim, excessive spending across the board. These supply chain anomalies should eventually get ironed out.

I expect the bull market to continue into 2022, but with bumps along the way. Are you looking to profit from the current wave of bullishness, without exposure to the risks that I’ve just discussed? That’s where my colleague Jim Fink comes in.

As chief investment strategist of Velocity Trader, Jim Fink has devised trading methodologies that reap market-beating gains, regardless of economic ups and downs.

Jim has put together a new presentation that shows smart investors how to make massive investment gains in a short amount of time. Click here now for access.

John Persinos is the editorial director of Investing Daily. To subscribe to John’s video channel, follow this link.