Today’s episode of Full Court Finance at Zacks dives into where the market stands heading into the holiday shopping season, following another big pullback Tuesday. The focus then shifts to three highly-ranked retail stocks that investors might want to consider buying now and holding.
Stocks tumbled Tuesday, with the S&P 500 down 1.8%, the Nasdaq 2.5% lower, and the Dow off 1.4% through early afternoon trading. The sharp drop marked the S&P 500’s second straight day of losses as Wall Street focuses on what’s next for the Fed. Meanwhile, bond yields have climbed to near three-month highs, with the 10-year U.S. Treasury at around 1.52%, up from the 1.18% it touched in early August—bond yields rise as prices fall
The recent selling comes after the Fed signaled last week that it could start to slowly reverse its pandemic stimulus, or massive bond buying program as soon as November. Meanwhile, the central bank said it could start to raise its interest rates sometime next year—higher yields make growth tech stocks less attractive.
Stocks could remain shaky in the fall and winter, and some Wall Street analysts think the U.S. economic comeback already peaked. Others cite cooling earnings revisions, rising prices, and global supply chain setbacks as reasons to worry.
But it is worth noting that even when the Fed starts to raise its interest rates, they will likely continue to favor stocks. For example, the 10-year U.S. Treasury yield has rarely and barely moved above 3% in the last decade, and with higher than 2% inflation, Wall Street will likely continue chasing returns in equities.
The market was also due for a pullback or even a correction (10% move lower from its highs) given the massive 2021 run. In fact, traders and analysts have been calling for a downturn for months and when it does come it will be healthy.
Still, long-term investors should try to stay relatively exposed to the market at all times. And let’s remember the overall earnings picture remains strong and the margins outlook for 2022 and 2023 suggests inflation could be somewhat transitory. On top of that, August retail sales were surprisingly solid, highlighting economic resilience in the face of delta variant worries.
Given this backdrop, investors might want to consider adding strong retail stocks poised to benefit from holiday season spending and grow for years, within different aspects of the market. The first stock up is high-end cooler and drinkware giant Yeti (YETI) that’s carved out a niche within a group of up-and-coming retailers like Lululemon (LULU) and others.
Meanwhile, Best Buy (BBY) has outpaced Walmart (WMT) over the last five years and its dividend yield is impressive. And, of course, it’s prepared to gain from the booming consumer electronics space that includes giants like Apple (AAPL) and new standouts such as Sonos (SONO) .