As expected, the markets opened on a strong note and then attracted some selling. Then for the rest of the session we pretty much flat lined.
Buyers stepped up in the realization that: 1) selling pressure is weak and 2) the stock market is still cheap. The pullback, while less than I anticipated, nevertheless sent the message to the bulls that stocks don’t go straight up. I expect a more meaningful pullback to occur sometime in the first quarter of 2014, but more on that another time.
In the afternoon yesterday, I spent some time at the Short Hills Mall, in my hometown of Millburn, NJ. Actually Brooklyn is my true hometown but I have lived in Millburn over twenty years. Anyway, the Short Hills Mall on Sunday evening was the scene of a violent shooting in which a carjacker shot and killed the owner of a Range Rover. I am not getting sucked into the gun debate or the sociological motivation behind the shooting. That is not is not the purpose of my daily investment commentary.
Rather, I am here to say that I went to the same mall yesterday to: 1) exchange a damaged Apple (AAPL) TV box; 2) see if the mall was negatively impacted by the shooting; 3) determine if holiday markdowns at a high end mall were any different than that at a mid-priced mall; 4) see how Qdoba, owned by Jack-in-the-Box (JACK) is performing relative to Chipotle Mexican Grill (CMG); and, 5) spend some time with my son who just return from school for the holiday break.
Apple replaced the defective box without question. The mall was quite busy. Realize that the Short Hills Mall is one of the most upscale malls in the nation. I am not going to venture a guess as to where it ranks in terms of upscale malls, but rest assured it is up there. Needless to say, as I mentioned yesterday, Saturday’s snow storm for the most part ground mall traffic to a halt while Monday’s shooting had no perceptible impact on Tuesday’s traffic at a high end mall. At the mid-priced mall that I went to on Sunday, the nearby Livingston Mall, markdowns were rather rampant. It was less prevalent at the Short Hills Mall, although there were markdowns to be had. Qdoba was not as busy as I would expect in a crowded mall. I am sure that the Chipotle Mexican Grill a few miles away on a major thoroughfare had its usual line out the door.
Later in the evening, I went with my wife and two of our sons to Costco (COST) for a toilet paper and staples run. For Costco, the traffic in the warehouse was rather sparse.
There are indications that consumers are migrating up the retail price scale once again. We refer to this as aspirational shopping or trading up. During recessions, consumers flock to dollar stores and off-priced retailers. During expansionary economic times, they trade up to higher priced products and retailers. Contributing to this effect is the significant repair to consumers’ balance sheets that have taken place over the past few years.
Still, despite all that I wrote, I am not enamored of the retail apparel sector. I think there are slim pickings in the sector. One current play we like in the sector is Michael Kors (KORS), which has excellent long term growth prospects. However, I am beginning to see some opportunities materialize. For example, I am taking a hard look at repurchasing Macy’s (M).
We wake up to slightly higher futures, declining gold, anticipation of the AMC Entertainment’s initial public offering and the approval of a $10 billion share buyback and 50% increase in the dividend for Boeing (BA). I expect positive follow-through to yesterday’s rally.
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView Asset Management, LLC was long KORS and BA — although positions can change at any time.
Scott Rothbort is also the publisher of the LakeView Restaurant & Food Chain Report, a newsletter focusing in on food, restaurant and agricultural stocks. A subscription is included with a paid Platinum Membership to Wall Street All-Stars or an individual subscription to the newsletter which can be ordered at www.restaurantstox.com
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