Hightower Weekly Wisdom

By Lyon Wealth Management on November 21, 2024

Consumers Gear Up for the Holidays

November 20, 2024

The Resilient U.S. Consumer Carries On

Retail spending in October remained above trend with improved data for September. Let us think about the big picture: over the last three months, annualized retail sales are up 4.6% y/y. This compares to the 20-year average increase of 4.2% y/y. In addition to the headline retail sales report, ISM Services last month showed a 56 reading. Anything above 50 indicates an expansionary environment, and close to 60 is pretty remarkable.

We often share that the consumer is 75% of U.S. GDP and services is 70% of consumption. This is clearly helping the overall GDP of the economy to run hotter than history at 2.5%. While a stronger growth rate will likely mean stickier inflation – it will not be runaway inflation. So, while bond yields have crept higher, they are factoring in higher growth. This is a good thing, especially as it pertains to corporate earnings.

Chart 1: In October, Electronic and Appliance Store Sales Gained 2.3% m/m¹

Third-quarter earnings data from the companies we follow have echoed a similar sentiment, and management teams have mentioned they too are noticing a robust consumer. American Express (AXP) reported its tenth consecutive quarter of record revenues with total revenues increasing 8% y/y. Card member spending increased 6% and card fee revenue growth accelerated to 18%. Additionally, AXP acquired 3.3 million new card members in the quarter, and 80% of new accounts come from younger cohorts, specifically millennials and Generation Z. This is all while AXP’s credit metrics are better than pre-pandemic levels.

Chart 2: AXP Customers Are Performing Better Than Pre-Pandemic²

On the earnings call, AXP’s CEO expressed confidence in the resilience and stability of its consumer base, saying spending growth has remained around 6% for the last few quarters. He also mentioned that the company does not see any signs that would indicate a decline in consumer spending.

Costco (COST) released monthly sales data for October and reported continued growth among its customers. The company reported net sales of $20 billion in the month, a 7.2% increase y/y. Sales in the U.S. grew 4.1%, 8% in Canada, and 7.1% internationally. E-commerce has been a segment of growth for COST and showed in October with 19.3% y/y growth. We expect COST to continue to show strength and growing segments going into the holiday season. COST reports its first quarter results on December 12.

What Are the Major Retailers Reporting?

Walmart (WMT) and Lowe’s (LOW) both reported third-quarter results on Tuesday. WMT beat estimates with same-store sales rising 5.5% y/y, 5.3% at U.S. Walmart’s, and 7% at U.S. Sam’s Clubs. Similar to COST, WMT is seeing great growth in its e-commerce segment. Global e-commerce sales rose 27%, led by store-fulfilled pickup and delivery. The company is also relying much heavier on advertising – global advertising revenues grew 28% y/y in the third quarter. Regarding the consumer, management said the U.S. consumer remains resilient with similar behaviors across the past four to six quarters. Customers continue to seek value, and WMT is seeing engagement across all income cohorts, with upper-income households accounting for a majority of share gains.

LOW beat revenue and same-store sales estimates, LOW saw a push-forward of demand from storm-related purchases in the southeast and the company continues to experience weakness in do-it-yourself (DIY) big-ticket sales. Management mentioned that the macro environment remains challenging for consumers amid high interest rates and inflation. But that said, the three primary drivers of LOW’s business continue to work in their favor, being strong home price appreciation, disposable personal income outpacing inflation, and the median U.S. home age being the oldest in history at an average age of 41 years. Together, these drivers and lower rates will continue to improve LOW’s business.

Last week Home Depot (HD) reported better-than-expected numbers across the board but is still experiencing some pain from the slow housing market. The company has reported 12 consecutive quarters of declining same-store sales which we expect to quickly change with lower interest rates and an improving housing market. Similar to LOW, HD said its performance in the quarter was positively impacted by hurricane-related sales, contributing approximately $200 million in revenues and adding 55 basis points to y/y growth. Its “Pro” segment (professional customers engaged in larger, more complex projects) outpaced DIY in the third quarter which has been an area of growth and focus for the company. Total transactions and average ticket sizes were nearly flat in the quarter.

We remain bullish on the housing sector. It will take time to see the turn, but the secular drivers are quite favorable for the industry. The country is five million homes short, there have been 14 consecutive years of underproduction from the home builders, and five million millennials are wanting to buy a home for the first time. We believe 2025 will bring lower rates under the Trump Administration (under his first term inflation was 1.9%) and the pent-up demand will follow.

Looking to the Holiday Season

According to the 2024 Bank of America Holiday Survey, American consumers are planning to spend an average of $2,100 this season, up 7% from last year. Younger age cohorts plan to spend more on average, and a lower percentage of consumers are reporting feeling financially strained compared to last year. Companies have reported seeing healthy consumer activity this year, and we have seen it in the data. Strengthening wages, while inflation declines, has been supportive of further consumer spending and improved sentiment overall. We expect to see continued consumer growth and spending going into 2025 and suspect companies will see the same.

Stephanie Link’s TV Schedule:

Investment Solutions is a group comprised of investment professionals registered with Hightower Advisors, LLC, an SEC registered investment adviser. Some investment professionals may also be registered with Hightower Securities, LLC, member FINRA and SIPC. Advisory services are offered through Hightower Advisors, LLC. Securities are offered through Hightower Securities, LLC. This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is neither indicative nor a guarantee of future results. The investment opportunities referenced herein may not be suitable for all investors. All data or other information referenced herein is from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other data or information contained in this presentation is provided as general market commentary and does not constitute investment advice. Investment Solutions and Hightower Advisors, LLC or any of its affiliates make no representations or warranties express or implied as to the accuracy or completeness of the information or for statements or errors or omissions, or results obtained from the use of this information. Investment Solutions and Hightower Advisors, LLC assume no liability for any action made or taken in reliance on or relating in any way to this information. The information is provided as of the date referenced in the document. Such data and other information are subject to change without notice. This document was created for informational purposes only; the opinions expressed herein are solely those of the author(s) and do not represent those of Hightower Advisors, LLC, or any of its affiliates.

¹Source: AP. As of November 15, 2024.

²Source: American Express. As of October 18, 2024.

200 W Madison, 25th Floor

Chicago, IL 60606

(312) 962-3800

hightoweradvisors.com