Holiday Retail Sales Surge, Boosting Consumer Confidence and Retail Stocks

The holiday retail season has kicked off with a bang, as Mastercard's SpendingPulse report revealed that U.S. retail sales excluding automotive increased by +3.1% year over year from November 1 through December 24. This strong performance comes as a relief to retailers and investors alike, as it signals a robust consumer spending environment heading into the new year.

The pivotal holiday retail sales report is set to be published by Mastercard, providing valuable insights into consumer spending patterns and the overall health of the retail sector. The report will be closely watched by investors, as it will help them make informed decisions about which retail stocks to buy, sell, or hold.

It's a big week for retail data with mixed signals on consumer spending. A first-quarter uptick in retail sales has forced retailers to keep a close eye on consumer behavior. Economists see a slight improvement, forecasting that the Mastercard SpendingPulse report will show that retail sales moderated slightly last month. Such good news would follow a tamer than expected May 3 jobs report, which saw wage growth easing. (Economists will also be watching Tuesday's Producer Price Index and retail sales data on Wednesday.)

What will it take for retail stocks to continue their upward trend? The retail sector "will need to see at least three benign core inflation prints, perhaps even four, before easing policy," Sarah House, senior economist at Wells Fargo, wrote in a research note last week. That makes the Mastercard SpendingPulse data crucial, she added, as "time is running out on the clock for even a late summer rate cut."

Here's what investors will be zeroing in on:
- Core retail sales, which strips out volatile food and fuel prices, is expected to rise by 0.3 percent on a monthly basis — an improvement from the 0.4 percent monthly jumps seen in January, February, and March.
- On an annual basis, core retail sales are seen rising by 3.6 percent — an improvement on March’s 3.8 percent, but still well above the Fed’s 2 percent target.
- So-called shelter inflation, which includes rents and housing costs, is still running hot. Any sign of easing is likely to influence the Fed’s outlook on interest rates.

Consumers and companies alike are worried about inflation. On Friday, the closely watched University of Michigan consumer sentiment survey showed that households are increasingly worried about the cost of living and a slowing jobs market. That comes in an earning season when several dozen C.E.O.s have told analysts that their less affluent customers are cutting back because of high prices. This raises the question: Are these signs that consumer spending is under pressure helping to bring down inflation?

The futures market on Monday was penciling in as many as two rate cuts this year, with the first coming in September. However, those odds have fallen steadily since the start of the year — and some rate hawks even see no cuts this year — as inflation has rebounded.

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In conclusion, the strong holiday retail sales performance signals a robust consumer spending environment, which is good news for retail stocks. Investors should keep a close eye on the Mastercard SpendingPulse report and use the data to make informed decisions about their retail stock portfolios. As the holiday season continues, retailers and investors alike will be watching for signs of continued strength in consumer spending, which could drive retail stocks higher in the coming months.