How the Action Alerts Plus team looks at the latest retail sales report.
The team at Action Alerts Plus likes some of the retail sector, but not all of it.
Calling the January Retail Sales report “simply stellar,” along with a solid uptick in manufacturing activity that puts those products on the shelves, the team still notes some issues.
Most noticeably, the team wrote recently, “the stock market is more focused today on renewed concerns over Ukraine as well as the potential pace for the Fed to dial back its pandemic stimulus.” Not to mention that much of the industrial production uptick lately has been “due to the sharp increase in utility output, not a surprise given the cold temps recorded during the month.”
Around here, we’re often much more interested in the why than the what. Obviously it’s always good to know what you should trade on any given Tuesday, but like the old saying goes: Give someone a stock and they trade for a day. Teach them about stocks and they trade for a lifetime.
So let’s dig into how the AAP makes its decisions around the retail sector.
“[O]ur preferred way of examining the retail sales data mirrors how we tend to first examine a company’s quarterly earnings report and by that we mean on a year over year basis. With that view in hand, we see overall retail sales jumped 11.4% in January, far better than the expected projections, and 14.1% year over year for the trailing three months. That second figure will serve as our benchmark as we evaluate upcoming retail earnings for those companies that have January as their fiscal year-end.”
Year over year analysis allows the AAP team to make a more apples-to-apples comparison than monthly data can provide. For example, comparing retail sales in January on a month-to-month basis would have you looking at January doldrums against the Christmas season. Any retailer will fall short on that metric, creating the appearance of failure when, in fact, you simply have ordinary seasonal adjustments.
What’s the takeaway here? When you have a data set, make sure to look at it the right way. With sales and business data, that often means reaching for the year-over-year data, not the month-to-month changes.
