Retail Stocks Currently on Fire

NEW YORK -- Investors are gobbling up retailing stocks in a manner that is in keeping with a season during which appetites often run unchecked, reported the Wall Street Journal, but by Jan. 1, they may regret overdoing it, according to analysts.

The retail sales outlook is significantly better today than it was a month ago, when oil prices and the presidential election were significant worries. But most of the good news has been sopped up by the recent gains in retail stocks, meaning that any further holiday-season surge could be difficult to sustain.

Oil prices, which reached a high of $55.17 per barrel in New York on Oct. 22, closed at $47.32 Friday. The price drop suggests that in the months to come, American households will be putting a little less cash into their gas tanks and furnaces than some feared, and more into stores' coffers.

Worries that the outcome of the presidential election would be hung up in courts for weeks, weighing on consumer confidence, proved unfounded. The stock market has been celebrating President Bush's re-election, and that may spur some people -- particularly the affluent, who account for an outsize portion of overall consumer spending -- to purchase a few more gifts this holiday season.

"With the election uncertainty behind us, the equity market rising and oil 15 percent down from its highs, I wouldn't be pounding my fist on the table saying this is going to be a moribund shopping season," said Merrill Lynch economist David Rosenberg.

Average gasoline prices have retreated to a bit below $2 per gallon, but they are still high enough to put a crimp in the spending of many lower- and middle-income consumers. The affluent are less likely to reduce spending because of high pump costs.

Forecasting firm Planalytics expects the cooler weather that settled over much of the United States during the past week to continue. That should help put shoppers into the holiday spirit earlier than last year, when November was balmy. While cooler weather is unlikely to push consumers to spend more than they otherwise might, the sooner they start shopping, the more likely they are to pay higher prices, boosting retailers' bottom lines.
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