After a whirlwind week that likely included too much turkey and some holiday shopping, the temptation for midlifer investors might be to look at retail stocks as a way to play the season.
Avoid that temptation. If you're just now thinking about investing in retailers likely to report nice sales and earnings because of Christmas shopping, you're too late. The pros have already driven up these stocks, making them a risky bet for continuing gains in the near future.
The S&P Retail Index fell 0.7 percent to close at 491.72 on Monday, but it's already recorded a gain of 5 percent for November compared to a loss of 1 percent for the overall market, based on the Standard & Poor's 500 Index. Not coincidentally, the retail index is also near its 52-week high.
There are several problems with buying retail stocks near the end of the year.
The first is that most retailers record their best performance in their fiscal fourth quarter, which for most retailers ends on Jan. 31 and includes the big Christmas shopping season. Because investors know this, they've already bought into the stocks, sending the prices higher in anticipation of good numbers.
There's a big risk in that strategy as well. Some retailers screw up the biggest shopping period of the year by betting wrong on which products consumers want. When that's the case, their revenue and earnings numbers come in lower than expected, and the stock tanks.
Then there's getting caught up in the retailer-induced frenzy that is the first Friday after Thanksgiving until the day before Christmas.
The National Retail Federation, the industry's trade group, has historically issued sales projections that are overly optimistic as a way to induce shoppers into the stores. Its thinking is that if consumers think other consumers are buying, then that will drive them to want to shop as well.
The game has already begun. The federation issued a statement Sunday that there were more consumers out on the so-called Black Friday than in 2009, and they were spending more — $365 per shopper compared to $343 a year earlier.
Yet that doesn't jibe with the federation's overall prediction: Retail sales are expected to rise 2.3 percent in November and December, slightly lower than the 10-year average increase of 2.5 percent. In other words, Black Friday may have been great for retailers, but the rest of the season is going to suck.
Don't even get me started on the marketing-fueled concept of Black Friday and Cyber Monday — the Monday after Thanksgiving when shoppers who avoided the malls take to their computers to fill their lists. Black Friday is usually eclipsed in terms of sales every year by the Saturday before Christmas, and the Monday after Thanksgiving has never been a big day to cyber shop.
So, if you're thinking about getting caught up in the Christmas retail frenzy by plunking down a few dollars for shares in Target or some other retailer, be a more conscientious shopper and wait until July.
The summer is when you can make a safer bet and be more likely to reap the rewards of a retail play. If you had bought the retail that comprise the S&P Retail index in early July this year, you'd be sitting on a nice 29 percent gain.
That's a stocking stuffer anyone can enjoy.