Rays of Light for Retailers
09/13/06 - 02:06 PM EDT
Nat Worden
With oil prices down 17% over the last month, investors see a ray of sun shining through the clouds that hung over retail stocks all summer long.
The breakthrough came Tuesday, when crude oil futures extended their decline to seven days in a row, closing down $1.85 to $63.76 a barrel. And finally, retail came to life. The S&P Retail Index rallied 3.1% Tuesday to reach its highest close since June 1, and the momentum spilled over into Wednesday's trading. The index recently was up 0.5%. "Retail has been under a cloud for a long time on the assumption that consumers were going to run out of money or have less to spend buying goods," says Paul Mendelsohn, chief investment officer of Windham Financial Services. "That hasn't really materialized on a major scale. There's no concrete evidence yet that the economy is really going into a tailspin. "The evidence so far is that we're coming down from a 4% to 5% growth rate maybe to a 3% growth rate," he adds. "That's very sustainable, and if that brings down commodity prices and inflation, that's good for the retailers." Shares of Wal-Mart (WMT Quote - Cramer on WMT - Stock Picks), which have been trading sideways while management blamed slower sales on high gas prices, jumped 1.2% Tuesday. Home Depot (HD Quote - Cramer on HD - Stock Picks), another retail titan that has posted consistent earnings gains while its shares stayed stuck in the mud, rallied 4.6%.
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