Wall Street Week Ahead: Investors eye consumer
discretionary stocks as U.S. reopens
Send a link to a friend
[May 29, 2020] By
David Randall
NEW YORK (Reuters) - Investors are taking a
closer look at the market's consumer discretionary companies as a
reopening U.S. economy fuels hopes of a turnaround for some of the
sector's hardest-hit names.
Many companies in the sector have been battered by the country-wide
coronavirus-fueled lockdowns that have weighed on growth and damaged
retail spending over the last several months, though the stocks of a
few, like Amazon, have soared.
A gradual lifting of lockdowns in some states has stirred hopes for a
bounce back for the retailers that make up much of the sector.
Some investors, however, say it may be months before consumers return to
their previous shopping habits, making it unlikely that the companies
will see a pickup in revenues in the near term.
Firms ranging from middle-income retailers such as Gap Inc <GPS>N> and
American Eagle Outfitters Inc <AEO.N> to high-end destinations like
Tiffany & Co <TIF.N> and Vail Resorts Inc <MTN.N> are expected to report
results in the week ahead.
![](http://archives.lincolndailynews.com/2020/May/08/images/ads/current/farmers_bank_sda_prom_050614.png)
"This particular group is full of landmines," said Jamie Cox, managing
partner for Harris Financial Group. "There is not going to be a lot of
investor follow-through until we get some certainty with what future
revenue prospects are going to be."
Shares of the Gap, for instance, are down 43% for the year to date. A
recession that persists through the fourth quarter of this year would
reduce the company's revenues by 40%, according to a note by research
firm Trefis.
Next Friday’s U.S. jobs report is expected to show that the unemployment
rate rose to 19.8% in May, smashing April’s record 14.7%, according to a
Reuters poll. Non-farm payrolls are expected to drop by 7.4 million,
adding to the 20.5 million jobs lost the previous month.
Cox is focusing on dominant players such as Amazon.com Inc <AMZN.O>,
Walmart Inc <WMT.N> and Target Corp <TGT.N>, which have a mix of
essential items such as groceries as well as electronics and games that
can appeal to customers who may face extended lockdowns during a
potential second wave of the virus.
[to top of second column] |
![](../images/052920pics/busine31.jpg)
The Wall Street sign is pictured at the New York Stock exchange
(NYSE) in the Manhattan borough of New York City, New York, U.S.,
March 9, 2020. REUTERS/Carlo Allegri/File Photo
![](http://archives.lincolndailynews.com/2020/May/29/images/ads/current/graue_20ENVISION_052720.png)
Overall, retail companies in the S&P 500 are up 12.9% for the year to date, a
gain powered largely by Amazon's 31% rally. Apparel companies, by comparison,
are down 16.2% over the same time.
Brian Jacobsen, senior investment strategist for the Wells Fargo Asset
Management Multi-Asset Solutions team, says retail companies will likely show
rising expenses over the next several quarters due to items like more frequent
sanitation of stores and technology purchases aimed at increasing the
productivity of employees working from home.
"It's really going to be a challenge to get a clear read of the direction for
quite a while," he said.
Despite those headwinds, investors may still gravitate toward companies that are
able either to tap the capital markets for funds or draw from their financial
reserves, said Randy Frederick, vice president of trading and derivatives with
the Schwab Center for Financial Research.
Retailers such as J. Crew and J.C. Penney have already filed for bankruptcy due
in part to the coronavirus pandemic, leaving more opportunity for companies that
are able to survive and grab market share, said Frederick.
"You're getting set up for potential upside surprises," he said. "You may take a
step back and look at this and say, 'No matter how awful these numbers may be,
at least they're still in business.'"
(Reporting by David Randall; Editing by Dan Grebler)
[© 2020 Thomson Reuters. All rights
reserved.] Copyright 2020 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content.
![](http://archives.lincolndailynews.com/2020/May/29/images/ads/current/debbiesfloral_lda_MARCHAPRIL_2020.png) |