As much as financial media bears loved pushing their crisis story, the world just keeps piling on the good news this week.
We got two such stories Wednesday that are — rightfully — dominating headlines… And with those two stories, we found the two top consumer spending stocks for our Fortune Research readers.
The lead story on Bloomberg covers Pfizer’s announcement that a third dose of its vaccine proved effective against the ominous-sounding omicron variant.
Source: Bloomberg
Meanwhile, the clickbait crowd over at CNBC is focused on the JOLTS job openings data — which crushed estimates.
Source: Bloomberg
Of course, each one of them hedged their click-bets with a bearish subhead — one on a “hard-to-detect” omicron variant and the other on “why the market isn’t ripping” on the news.
In a for-profit media landscape, I guess you gotta do your best to please everyone. But it’s miserable for those of us trying to figure out what’s actually going on in the world…
The truth is the Pfizer news all but seals the deal for a continued — but slowing — acceleration of spending into the holiday.
And to put the JOLTS job openings report in context, here’s 20 years of data…
Source: Bloomberg
Just barely below July’s all-time high.
That means labor supply remains the issue… not demand. Comparing hires to job openings shows us just how tight the market is…
Source: Fortune Research
The more job openings relative to available labor means wages are going up.
When wages go up, employees are more likely to quit for more money elsewhere. And although the quits rate eased a bit from the prior month, it remains well above historical levels.
Source: Bloomberg
And both of these factors are causing the VIX — or “fear index” — to collapse back toward 20. A level of 20 means average volatility of 1% moves up or down each day is expected. The higher above 20, the more volatile the market. The lower under 20, the less volatile.
Source: Bloomberg
More importantly, the willingness to seek higher pay is another indicator that consumer spending will be strong this holiday season — so it’s time to look at stocks to play it…
The 2 Top Consumer Spending Stocks This Holiday Season
Spending will be especially strong among the wealthiest demographics.
Given that backdrop, I want to highlight not one… but TWO… free trades in the top consumer spending stocks we can take advantage of on a down day.
The first: our old friend the Consumer Discretionary Select Sector SPDR ETF (NYSEArca: XLY). It consists of almost entirely mid- and large-cap stocks that should fare well under current economic conditions.
It is also heavily weighted — roughly 40% — toward Amazon.com Inc. (Nasdaq: AMZN) and Tesla Inc. (Nasdaq: TSLA). The first one is in a fantastic bullish setup following last week’s pullback heading into the holiday. While I’m not a huge fan of the latter, most rich people are, and this is the time of the year where a lot of deals get done.
XLY was down slightly Wednesday, so it was a great day to leg into a position.
The second trade is kind of a double whammy… capitalizing on both increased consumer spending and the boom in real estate prices.
The first thing most people have to do after moving into a new house is to take stock of how their furniture fits and blends with the new surroundings.
Spoiler alert: It often doesn’t.
For folks at the upper end of the income spectrum, that’s where Restoration Hardware, or RH Inc. (NYSE: RH) comes in.
People who buy $15,000 couches don’t really care if supply chain delays mean it gets to their house in three months. They want the furniture that best compliments their home, period…
Moreover, the company is expanding into Europe over the next few years. That’s likely to be massive for top line revenue growth, which will in turn fuel a huge acceleration in earnings.
RH reported earnings after the close Wednesday, and those supply chain delays likely caused some of its Q3 revenue to get deferred into Q4 or later. The stock hit a new cycle low last week on the sell-off and is trading down a little as of this writing.
If the company beat earnings and rose, then buying in small amounts over time is the right approach. If they missed and the stock retested support levels from last week, then it’s fine to buy more aggressively.
Frankly, I love it around this price under either condition.
Pretty much the whole rest of the watchlist was green Wednesday, so if you need to finance these two consumer spending stock trades, just sell something that’s up… go get ’em!
Updated watchlist below…
Source: Bloomberg, Fortune Research
All the best,
Matt Warder
Fortune Research
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