Analysis: Black Friday = White Knight?

By JOE BEL BRUNO
AP Business Writer

NEW YORK — Investors might not want to place too much faith in the notion that a strong start to holiday shopping might breath new life into the stock market.

Black Friday may have gotten the season off to a good beginning: many retailers reported, anecdotally, seeing more people than last year taking advantage of the day’s deep discounts. One day does not a season make, however.

Investors want to see the euphoria of the first shopping day of the season persist all the way until Dec. 25, and beyond, before they place a bet on how Christmas went. “Consumer spending is always something we pay attention to, we want to see higher traffic on Black Friday,” said Ryan Larson, senior equity trader at Voyageur Asset Management. “But, results from just one day isn’t going to do it — the follow-through is more important from a trading standpoint.”

Stores are hoping for a surge of shoppers during the holiday shopping period after many consumers pulled back in recent months. Merchants hope longer hours and deeper discounts will help make sales goals although consumers face a barrage of troubles such as a slumping housing market, tight credit and rising fuel prices.

So far, the gimmicks seem to be working. Shoppers shrugged off lead-tainted toy recalls and worries about the economy and jammed stores before dawn Friday to grab discounted TVs, toys and the Nintendo Wii.

But investors need to see more empirical evidence — such as same-store sales figures — before determining how retailers fared during the period, said Larson. Beyond any dramatic comments from the likes of Wal-Mart Stores Inc., the interpretation of sales data might shift as analysts get more information later next week. That’s what happened last year.

Investors, worried that consumer spending was in the midst of a major erosion, sent the Dow Jones industrial average down 1.2 percent on the first full session after Thanksgiving. But, experts later felt it wasn’t all that bad — and stocks that week were able to rebound. In the past decade, the Dow — which now includes Wal-Mart and Home Depot Inc. among its components — ended lower on the first Monday after Thanksgiving in 2004-06, 2001-02, and 1998-99. It finished higher in 1997, 2000, and 2003. The biggest post-Black Friday surge during the past 10 years was in 2003 — when the blue chip index soared 1.16 percent.

But that had more to do with a pair of economic reports on manufacturing and construction than a strong retail sales reports, according to analysts. One reason offered for the retreat is that stocks tend to run up in
the week ahead of Black Friday. Since the start of the decade, the Dow has only shown declines in 2000, 2001 and 2006. Analysts say that could represent some bullishness by investors ahead of holiday sales data, and because the week of Thanksgiving tends to have light trading.

This past week, major indexes fell amid growing concern that the unfolding credit crisis will hurt the already
weakened financial system adn could spill into the broader economy. The Dow fell 1.49 percent during the week, the Standard & Poor’s 500 index shed 1.24 percent, and the Nasdaq composite dropped 1.54 percent. Peter Dunay, investment strategist at Leeb Capital Management, said Wall Street is too preoccupied with the credit market turmoil to worry that much about holiday shopping.

So far, the nation’s biggest banks have written down about $75 billion worth of securities tied to subprime mortgage-backed debt — and that number could grow quickly as the fourth quarter closes.

“We’re always hoping for good news from the consumer,” said Dunay. “But, it doesn’t matter how much consumers spend when you’re talking about going on $80 billion of writedowns. The financial sector is just a
wreck.”

This past week, the Standard & Poor’s 500 index had lost all its 2007 gains before recovering on Friday — its up 1.58 percent this year. The Dow is up 4.15 percent, and the Nasdaq composite is up 7.51 percent.

“The only side that’s interesting is we’re down so much in recent weeks, and expectations for consumer spending are a little lower,” Dunay said. “Regardless, the tough part for the market isn’t the retailers — its that these financials are carrying a boulder on their backs.”