Euro bears jolt US bulls but consumer spending may help

There is no sign that investors’ headaches from Europe are going away, but early indications of strong holiday spending and an improving labour market could soothe Wall Street this week. Fears that Europe’s debt crisis could spiral out of control have pushed stocks off two-year highs hit earlier this month.

Since November 5, the S&P has fallen 3.1% after running up 17% over the two months before that. At Friday’s close, the S&P500 was down 0.9% for the week, almost matching the Dow’s 1% drop.

However, those fears have been countered by signs of a gathering recovery in the labour market at home. Anecdotal evidence suggests holiday shopping got off to a good start. The S&P retail index rose more than 5% in the run up to “Black Friday,” the day after Thanksgiving, when Americans traditionally take shopping malls by storm. Retail stocks’ gains are a sign of an
increasingly bullish view of the US consumer after a string of stronger indicators on jobs, sentiment and spending.

“The consumer is more confident and they are spending a bit more money, and I think retail as a whole is perking up,” said Gary Bradshaw, portfolio manager at Hodges Capital Management in Dallas, adding that retail stocks “look relatively cheap to us, and I think sales are going to surprise to the upside.”

In October, companies hired at their fastest pace since April, the government’s payrolls data showed, while the latest weekly initial claims for unemployment benefits have dropped to their lowest in over two years. November consumer sentiment rose to the highest level since June. October consumer spending also gained.   

Early anecdotal evidence from Black Friday suggested shoppers were spending and that discounts were not as deep this year as last, potentially helping to lift retailers’ margins as they look for the best holiday season in three years. Black Friday marks the start of the holiday spending when US retailers traditionally turn a profit, or go into the black for the year.

The National Retail Federation said that nearly 60 million Americans plan to hit the stores over the weekend, while another 78 million might join the crowds of shoppers. Retailers on the front lines will publish same-store sales data on Thursday when they will likely comment on the weekend’s events. "It seems the American consumer is back with a vengeance," said Kim Caughey Forrest, senior equity research analyst at Fort Pitt
Capital Group in Pittsburgh.