How Was Cyber Monday?

Cyber Monday Disappoints Adobe

Heading into Cyber Monday, we knew it was going to be a bonanza for online shopping because of the pandemic. According to Adobe Analytics, holiday shoppers spent $10.8 billion online which was up 15.1% from last year. That was way below Adobe’s estimate for $12.7 billion. 

Remember, NRF expects 20% to 30% online sales growth for the season. This weaker than expected sales result caused Adobe to lower its overall online sales projection to $184 billion which is 30% growth. That’s down $5 billion for the original expectation. That means, excluding this miss, they lowered their estimate by $3.1 billion.

One of the culprits of this weaker than expected result was increased sales starting in October. That’s because Amazon Prime Day was from October 13th to the 14th. It’s usually in the summer. Wal-Mart and Target started their deals in mid-October to compete. 

Plus, if there was high growth in spending on necessities, there was no reason people couldn’t make the purchases earlier for self-consumption. The most popular items were Hot Wheels Lego sets and Apple AirPods. Apple AirPods would be a massive story for any smaller company, but this wildly successful product hasn’t moved the needle much for Apple because it is so huge. The iPhone is the most successful product in modern American history.

Chase Results Very Weak

Now that we have actual results from Adobe, I’m less concerned with what the card companies show. That’s because they aren’t perfectly accurate. It’s just what one firm’s customers did. It’s usually not seasonally adjusted, but in this latest update we have data that adjust for the timing of the holiday season. 

As you can see from the chart below, in the week ending on Black Friday, yearly growth was -8.5% and on Black Friday it was -18.6%. Chase has 30 million debit and credit holders. We know there was great weakness at brick and mortar stores. Maybe those stores are more highly represented in this data set. It’s hard to see how sales were down this much if Adobe’s online sales growth reading was so strong.

Furthermore, as of Tuesday’s close, the S&P retail sector was up 20% in the prior month. That’s better than the overall market. Investors either don’t care about this being a weak holiday season or think it was better than the Chase data shows. It could be a combination. 

We know holiday spending would be much better if the vaccines came out 3 months earlier. However, considering the pandemic these, sales results aren’t bad. Determining if the retail sector is a buy or sell is a whole different issue though.  

Redbook same store sales growth in the week of November 28th rose from 2.8% to 9.2%. This sounds much better than the Chase data, but it might be impacted by the timing of the holiday shopping season. Some are not willing to call the start of the holiday season a smashing victory like this implies it was.

Another Stimulus After All?

Investors had gotten used to the idea that the economy would go without a stimulus until at least the inauguration. Then we would get Congress to debate for a few weeks before something is passed. Of course, the Georgia Senate elections are also in the mix. 

This situation would be hugely problematic for millions of people because pandemic benefits expire at the end of the year. If people actually get benefits by February or March, it will be too late. They will have their jobs back, but they will have gone weeks without help. The best timing would have been to do a deal in October. The 2nd best timing is now.

A bipartisan Senate group unveiled a $908 billion compromise on Tuesday. It’s important that it came from the Senate because that’s in the GOP’s hands. The Senate is the biggest roadblock to a deal as the Dem House and President Trump are in favor of a stimulus. The initial proposal calls for $300 per week in additional unemployment benefits, $300 billion in PPP money, $250 billion in state and local government help which would help education avoid more layoffs, a temporary liability shield, and $50 billion for 4 vaccines to be distributed. There won’t be any stimulus checks.

Our best bet for stimulus checks would be if the Dems win both Senate seats. Stimulus checks wouldn’t be needed that much once the vaccines go out, but it would be worth following. It's unlikely that a stimulus has a greater than 50% chance of passing by the end of the year, but the odds were virtually zero before this latest news, so it’s a big positive for markets.

Truth About Small Businesses

The NFIB small business index has been too optimistic compared to the devastation we have seen small businesses face. We can expect the NFIB survey to fall because a Dem potentially won the White House. Then we can expect cyclical improvement as the economy reopens next year. The chart below shows a more realistic description of how small businesses are doing.

As you can see, the small business jobs index is at 94.29 which is below the worst of the financial crisis and down 3.89% from last year. It’s at a cyclical low point as of November. We don’t expect to see a meaningful recovery until the end of Q1. This has been a K shaped recovery where firms with access to public investors have won big, while small firms have gone bust.

Conclusion

Details on the holiday shopping season differ. Adobe data shows online spending was up big, but not as much as the bulls expected because of sales earlier in the year. The next controversy will be whether people can gather together for the holidays. 

A guess is policymakers will tell people to stay home. We still don’t know how Thanksgiving impacted the spread of the virus. The odds of a stimulus being passed in December shot up on the news of a bipartisan proposal. Small business employment is at a cyclical low according to Paychex/IHS Markit. It will recover sharply next year. 

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