The chapter of 2013 is about to conclude, and it narrates
about high political and economic drama. It was a journey full of
events that witnessed several highs and lows starting with
government's austerity measures, higher payroll taxes and
stagnant wages to the 16-day partial government shutdown and
political impasse. These hurdles did keep the economy at bay but
not for a long time as it gradually pushed its way out of the
To boost economic growth and keep interest rates low, the
Federal Reserve initiated monthly stimulus program of $85
billion. This bond buying campaign had a role to play in the
favorable outcomes in the shape of housing market recovery,
surging stock portfolios, strengthening manufacturing sector and
improving labor market condition, which provided strength to the
economy. Third quarter gross domestic product (GDP) grew at an
annualized rate of 4.1% according to the "third" estimate from
the Bureau of Economic Analysis.
Fed Decides to Taper in New Year
Now with the economy showing more constructive and convincing
signs, the Fed at the
FOMC meeting on Dec 17 & 18
decided to taper its monetary stimulus package by $10 billion
commencing Jan 2014
. The Fed indicated that it would lower its purchases of
mortgage-backed securities by $5 billion to $35 billion a month
and its purchases of Treasury securities by another $5 billion to
$40 billion per month.
Fed Chairman Ben Bernanke had earlier indicated that easing of
monetary stimulus will happen only after taking into account the
job conditions, inflation and economic growth. But one thing
officials have been trying to convince investors that even if the
tapering is initiated, they would try to keep the interest rates
near zero until unemployment rate drops below 6.5%.
What Prompted the Decision?
Now let's look at the favorable economic numbers that led the
Fed to take this brazen step even when the inflation rate is well
below its target of 2%. The data released by University of
Michigan and Thomson Reuters showed that consumer-sentiment index
jumped to 82.5 in December from November's reading of 75.1 buoyed
by improving fundamentals. Consumer confidence is a key
determinant for the economy's health with consumer spending
accounting for over two-third of the U.S. economic activity.
Consumer spending climbed 0.5% in November as against 0.4%
in October and the most since Jun 2013, further hinting that
the derailed economy is gaining traction. However, what could
limit the growth is the tepid increase of 0.2% in personal
What is inspiring consumer spending is the improving job
prospects, with unemployment rate declining to a five-year low of
7% in November. The latest report from Labor Department indicated
that initial claims for jobless aid has fallen 42,000 to 338,000.
Further boosting sentiment was the total non-farm payroll data
that said employment grew 203,000 in November, higher than the
consensus estimate of 182,000.
Earlier this month, the U.S. Department of Commerce came out
with retail sales data that also highlighted renewed consumer
confidence, leading to a 0.7% jump in November retail sales. The
gain, which is the most since Jun 2013, followed a 0.6% rise
witnessed in October; thus removing the cloud of obscurity about
The latest to add in the streak of encouraging economic
indicators is the holiday season sales data from Nov 1 to Dec 24,
2013, giving a fresh evidence of an increase in consumer
spending. According to MasterCard SpendingPulse, sales during the
period jumped 2.3% compared with 0.7% rise in the prior-year
period that battled with Superstorm Sandy and fiscal cliff.
Early-hour store openings, huge discounts, promotional
activities and free shipping on online purchases drove in
cautious, budget-constrained consumers to the shop this holiday
season, which however saw only 25 days between Black Friday and
Christmas as against 31 days last year.
Is the Economy Ready for 2014 Tapering Effect?
With improving economic prospects, the outcome was almost
certain - the Fed at last decided to reduce its monthly bond
purchases at a modest pace starting in January. Now the big
Is the Economy Ready for 2014 Tapering Effect?
Well for now the economy seems to be well settled on its growth
trajectory and the economic indicators also validate the
Analysts believe that consumer spending would remain strong in
2014 and could play a vital role in sustaining the economic
growth going forward. Consumer spending is a primary component of
the economy, and the way consumers behave give a rough idea about
the health of the U.S. economy.
So far this year, the broader markets have showcased signs of
a better pace of recovery and have thus infused hopes of a better
economic scenario going forward. Though this statement is
debatable, the significant recovery in the stock market is
reflected through strong gains for the broader market indices.
S&P 500 has clocked gains of roughly 26%, while Dow Jones
Industrial Average has advanced approximately 22.9% so far this
year. The Nasdaq Composite Index has increased 33.9%
Retail Still a Lucrative Investment Opportunity
Banking on its wide spectrum, the Retail/Wholesale sector
still remains a lucrative investment opportunity for investors. A
reflection of that is evident from the
SPDR S&P Retail
Market Vectors Retail ETF
) surging roughly 41.3% and 38.6% year-to-date, respectively,
outperforming the S&P 500.
Thus, identifying the future winners from the sector would be
a prudent idea to make an investment decision. Now we focus on 3
retail stocks that look strong going into 2014 and that you can
capitalize on and enrich your portfolio.
Three Retail Stocks to Roar in 2014:
We suggest investing in
), a designer and manufacturer of basic apparel in the United
States. Shares of this Zacks Rank #1 (Strong Buy) trades at a
forward P/E (price-to-earnings) of 18.11x, a discount of 2.8% to
the peer group average of 18.64x, and have amassed a year-to-date
return of 96.6%. This Winston-Salem, North Carolina based company
had registered an average positive earnings surprise of 10.2%
over the trailing four quarters, and has a long-term earnings
expectation of 15.6% that makes it look attractive.
G-III Apparel Group, Ltd.
), a manufacturer and marketer of women's and men's apparel, is
another stock to bet your bucks on. This Zacks Rank #1 (Strong
buy) stock has amassed a year-to-date return of 116.5% and is
expected to witness earnings growth of 15.9% in fiscal 2013 and
80% in fiscal 2014.
The company's long-term estimated EPS growth rate is 16.5%,
higher than the peer group average of 13.8%. Shares of this New
York based company trades at a forward P/E of 20.36x, a discount
of 13.8% to the peer group average of 23.62x. The company had
registered an average positive earnings surprise of 96.6% over
the trailing four quarters.
Another stock that investors may look forward to is
), one of the leading department store retailers. This Zacks Rank
#2 (Buy) stock has amassed a year-to-date return of roughly
40.7%, and is expected to witness earnings growth of 6% in fiscal
2013 and 10.9% in fiscal 2014.
Though the stock looks a bit pricey with a P/E multiple of
13.65x when compared with peers, however, it should not
disappoint investors given the company's long-term expected
earnings growth of 11%. The Cincinnati-based company had
registered an average positive earnings surprise of 5.8% over the
trailing four quarters.
We believe that the above stocks that boast strong
fundamentals and growth prospects are capable of quenching
investors' search for market winners. With the economy regaining
its lost momentum and looking promising for 2014, a sneak peek
into the space for some possible outperformers backed by a
favorable Zacks Rank could be handy for investors.
G-III APPAREL (GIII): Free Stock Analysis
HANESBRANDS INC (HBI): Free Stock Analysis
MACYS INC (M): Free Stock Analysis Report
MKT VEC-RETAIL (RTH): ETF Research Reports
SPDR-SP RET ETF (XRT): ETF Research Reports
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